Pro Forma Cap Tables Explained
Before you sign a term sheet, you should know exactly what you will own afterward. A pro forma cap table answers that question. It shows your company's ownership as it would look once the proposed round closes, so you can see the real effect of new money, a bigger option pool and any SAFEs or notes that convert.
Key takeaways
- A pro forma cap table shows ownership after a proposed round, including new shares, option pool changes and converting SAFEs or notes.
- It turns headline terms like valuation and round size into the percentages that actually matter to you.
- The size of the option pool, and whether it is created before or after the new money, can change founder ownership noticeably.
- Build your own model, then check it against the version prepared by the investor or your lawyer.
Your current cap table is a record of who owns what today. That is useful, but in the middle of a fundraise it is not the number you care about most. What you really want to know is: after this round closes, how much of the company will each founder, employee and investor own?
"Pro forma" simply means "as if." A pro forma cap table shows your ownership as if the round had already happened. It is one of the most important documents in any priced round, and it is often where surprises hide. This explainer covers what goes into one, how to read it and how to build a simple version yourself.
A quick note: this is general information, not legal, tax or investment advice. Equity terms are technical and the details of SAFEs, notes and option pools vary. Work with a startup lawyer and, where relevant, an accountant before you sign anything.
What a pro forma cap table shows
A pro forma cap table usually has one row for each holder or group of holders and several columns that move from "before" to "after." The key pieces are:
- Current holdings. Shares owned by founders, early employees, angels and any existing investors.
- Options. Options already granted to employees and advisers, plus the unallocated pool reserved for future hires.
- Converting instruments. SAFEs and convertible notes that turn into shares when the round closes.
- Option pool changes. Any increase to the pool that the investor asks for as part of the deal.
- New investor shares. The shares issued to the new investors in exchange for their money.
- Post-round totals. Each holder's shares and percentage of the company after everything above has happened.
Most pro forma tables show ownership on a fully diluted basis. That means the calculation counts not only issued shares, but also granted options and the unallocated pool, as if all of them became shares.
Pre-money, post-money and price per share
Three terms do most of the work. The pre-money valuation is the agreed value of the company before the new investment. The post-money valuation is the pre-money value plus the new money. The price per share is usually the pre-money valuation divided by the pre-money fully diluted share count, as defined in the term sheet. That last part, "as defined," is where many of the important details live.
Pro tip
Ask your lawyer to confirm, in writing, exactly which shares, options and converting instruments count in the pre-money share count. Two models that use slightly different definitions can produce different founder percentages from the same headline valuation.
The three things that move your percentage
In most early rounds, three forces dilute existing holders. Understanding each one helps you spot what is negotiable.
1. New money
The new investors receive new shares. Everyone else's percentage goes down, even though they still hold the same number of shares. This is the dilution you expect, and in exchange the company gets the cash it needs to grow.
2. The option pool
Investors often ask that the unallocated option pool be a certain size after the round, so you can hire without coming back for more shares soon. If the term sheet says the pool increase must be included in the pre-money valuation, existing holders bear that dilution, not the new investors. Founders sometimes call this the option pool shuffle.
The fix is not to refuse a pool, which you will probably need. It is to size the pool to a realistic hiring plan. Build a simple list of the hires you expect before your next round and the rough equity each might receive, then use that to support the size you propose.
3. Converting SAFEs and notes
If you raised money on SAFEs or convertible notes, those usually convert into shares at the priced round. Depending on their terms, they may convert at a valuation cap, a discount to the round price or the round price itself. Several converting instruments at low caps can take a bigger slice than founders expect, which is exactly why the pro forma is so useful.
Common mistake
Forgetting how SAFEs convert when you read the headline valuation. A founder may hear "post-money valuation" and calculate their stake in their head, then discover that SAFE conversions and a pool increase reduce it further. Always look at the pro forma before you agree terms, not after.
A worked example with made-up numbers
Let's walk through a simplified example. Every number below is made up for illustration only, and the SAFE conversion is simplified. Real calculations depend on the exact wording of your documents.
Hypothetical example
Before the round, a startup has 10,000,000 fully diluted shares: Founder A holds 4,500,000, Founder B holds 4,500,000 and the option pool holds 1,000,000. Each founder owns 45% and the pool is 10%.
The company agrees a round in which a new investor puts in $2,000,000 for 20% of the company after the round, at a made-up price of $0.625 per share. That means a post-money valuation of $10,000,000 and 3,200,000 new shares.
Earlier SAFE holders, who invested $500,000 in total, convert at a lower price set by their cap and receive 2,200,000 shares. The investor also asks for a pool increase of 600,000 shares, included before the new money.
After the round, the company has 16,000,000 fully diluted shares. Each founder still holds 4,500,000 shares, but that is now about 28.1% each, down from 45%. The option pool totals 1,600,000 shares, or 10%. The SAFE holders own about 13.8% and the new investor owns 20%.
Look at what happened to the founders. The new investor took 20%, which they expected. But the SAFE conversions and the pool increase together took a further share of the company. In this example, the founders' combined stake fell from 90% to about 56%. None of that was hidden; it simply was not visible until the pro forma was built.
A simple pro forma cap table template
Copy this layout into a spreadsheet and add one row for each holder or group. The rows below use the made-up numbers from the example above.
| Holder | Shares before | % before | New shares in round | Shares after | % after |
|---|---|---|---|---|---|
| Founder A (example) | 4,500,000 | 45.0% | 0 | 4,500,000 | 28.1% |
| SAFE holders (example) | 0 | 0.0% | 2,200,000 | 2,200,000 | 13.8% |
| New investor (example) | 0 | 0.0% | 3,200,000 | 3,200,000 | 20.0% |
Add rows for each founder, granted options, the existing unallocated pool and the pool increase, then a total row. Percentages may not add to exactly 100% because of rounding, which is normal.
How to build and check your own pro forma
You do not need specialist software to understand your pro forma. A spreadsheet and your documents are enough to build a version you can compare with the official one.
- Start from a clean current cap table. List every share, every option grant and the unallocated pool. Make sure it matches your company records.
- List every converting instrument. For each SAFE or note, note the amount, cap, discount and any interest. Read the actual documents, not your memory of them.
- Enter the proposed terms. Add the pre-money valuation, the round size and the target pool size from the term sheet.
- Calculate the pool increase and conversions. Follow the definitions in your documents. This is the step where professional help is most valuable.
- Add the new investor shares. Calculate shares from the investment amount and the price per share.
- Check the totals. The new investor's percentage should match what the term sheet promises, and every row should add up.
- Compare with the official version. When your lawyer or the lead investor shares their pro forma, compare it line by line with yours and ask about every difference.
Questions to ask while you review
- Is the pool increase included in the pre-money or post-money valuation?
- Which instruments are counted in the pre-money share count?
- How do the SAFEs or notes convert, and at what price?
- How many unallocated options will remain, and does that match our hiring plan?
- What would ownership look like if we raised a little more or a little less?
Running a few scenarios side by side is one of the most useful things you can do. Try a smaller pool, a different round size or a different valuation, and watch how the founder percentages change. That gives you concrete numbers to bring into the negotiation.
Your pro forma cap table checklist
- Confirm your current cap table matches company records
- Collect every SAFE and note with its cap, discount and terms
- Get the pre-money valuation, round size and pool target in writing
- Ask how the pre-money share count is defined
- Build a pro forma in a spreadsheet with before and after columns
- Run at least two alternative scenarios for pool size and round size
- Compare your model with the official pro forma line by line
- Review the final version with your lawyer before signing
Frequently asked questions
Who prepares the pro forma cap table?
It is often prepared by the company's lawyers, sometimes with input from the lead investor or using cap table software. Founders should still build or at least carefully review their own version, because it is their ownership on the line.
Is a pro forma cap table legally binding?
Usually not on its own. It is a model of the outcome. The legal documents for the round, such as the share purchase agreement and updated company records, set the binding terms. Make sure the final documents match the pro forma you agreed.
Why do my percentages differ from the investor's model?
Small differences often come from rounding or from different definitions of the share count, the pool or how SAFEs convert. Ask about each difference until both models agree, and keep a note of the final assumptions.
Do UK startups use pro forma cap tables too?
Yes. The terminology can differ slightly, and UK companies often use EMI options rather than US-style options, but the idea of modeling ownership after a round is the same. A UK startup lawyer can help with local specifics.
Related reading
The bottom line
A pro forma cap table turns the headline terms of a round into the numbers that matter: who owns what once the money arrives. New shares, a bigger option pool and converting SAFEs or notes all play a part, and seeing them together lets you negotiate with your eyes open.
Before your next term sheet, build a simple pro forma in a spreadsheet, run a few scenarios and walk through it with your lawyer. Twenty minutes of careful modeling now can save you from an unpleasant surprise at closing.
