Beck Terrell posted an update 4 months, 2 weeks ago
A pro forma cap table is an excel file that displays a company’s capital structure as of a future date and after an initial investment. The spreadsheet combines historical data of the business to illustrate the average percentage of profits, the current value of its holdings, and the expected dilution during different stages of operations. Investors can view each line in the table in different color schemes so as to identify the different holding periods of the company.
A pro forma cap table helps investors in determining whether to purchase shares from the company or opt for financing. Usually it is recommended that the shares be purchased only if there are substantial advantages. For instance, a ten percent raise might not be significant if there are no offsetting savings. Conversely, the exact opposite situation could apply if the raise is accompanied by heavy dividends. It is also advisable to wait until the financing round has ended before deciding to sell shares of the firm.
The investor will find it useful to use the pro forma cap table even when making the buy or sell decision. Sometimes the shares being bought are undervalued relative to other firms in the same industry. This makes it necessary for the investor to select those firms that offer better financial leverage. The investor can then use the spreadsheet to compare the total market cap of all the firms in the same industry. The spreadsheet can then highlight those companies that offer the best potential return on investment.
Another advantage of using the pro forma cap table for funding decisions is that it provides a reliable comparison of overall shareholder value. After an investment in a startup, there may be significant losses experienced by some of the shareholders. These may offset any gains from the sale of equity shares. Investors who have the option of selling their shares during the startup stage can do so when they are already trading in their own shares. This is how early stage startups can generate significant proceeds from their initial sale.
Another advantage is that it is easy to determine the price per share across different sizes of startups . This is because the spreadsheet highlights the difference between the current share price and the multiple-stage enterprise value. It also highlights the multiple-stage ratio across different sizes of companies. Once this information is downloaded, it can be used by any future investor to determine which shares to purchase. The investor does not need to visit an official valuation site to collect this information. Instead, it can be easily obtained from the spreadsheet, and then used to make purchasing decisions.
The use of the pro forma cap table allows investors to invest in startups without too much difficulty. Unlike other methods for determining ownership stakes, this system makes it easy for smaller investors to participate in the ownership process. These investors can use the spreadsheet to compare multiple companies, or they can just choose to invest in one company. There is no need to visit the office of the registrant to request ownership information. As long as the investor has an internet connection, they will be able to receive ownership information for any company that meets the criteria of the spreadsheet.
Because it is easy to obtain the ownership information that goes into the spreadsheet, investors who invest in startups with small cap may avoid paying high fees to obtain this information. Small cap startups may only have a few shareholders, therefore it would be impossible for large institutions to invest in these companies. However, if these companies meet the requirements of the spreadsheet, they may still want to use the pro forma cap table to determine their ownership stake.
Investors who are new to investing in startups with small or medium capitalization should familiarize themselves with the spreadsheet. This way they can compare different companies and choose one that will work for their investment strategy. It is not necessary to invest in the entire portfolio of companies listed in the spreadsheet, but it is possible to create portfolio strategies for all of the companies listed. Investors who cannot determine the level of risk they are willing to tolerate for a given investment can use the pro forma capitalization table to choose the lowest risk option. They can also choose the highest return option if they have a specific goal.