Pro Forma Cap Table: Formula, Example, and VC Review Checklist
A practical guide to building and reviewing a pro forma cap table, including formulas, a worked financing example, option-pool dilution, and investor red flags.
A pro forma cap table is a forward-looking model of a company's ownership after a proposed financing or other equity transaction. Unlike the current cap table, which records the capitalization as it stands today, the pro forma combines that baseline with a term sheet's assumptions to show the price per share, new securities, dilution, and post-closing ownership.
The useful question is not simply “who owns what?” It is “which documents and assumptions produced each post-money percentage?” A deal-ready model lets a founder test terms before signing and lets an investor trace the ownership outcome back to the current records. It should still be reviewed against the company's governing documents and transaction paperwork; it is not a substitute for legal, tax, or accounting advice.
What is a pro forma cap table?
A pro forma capitalization table presents a before-and-after view of a company's equity under a defined scenario. A priced round is the most common use, but the model can also test an option-pool increase, SAFE or note conversion, warrant exercise, secondary transfer, acquisition, or another event that changes ownership.
Wilson Sonsini's ECVC explanation identifies three outputs that are easy to overlook: the new preferred share price, the number of shares the company must authorize, and any shares required to expand the option pool. Those outputs make the pro forma a transaction model, not just a percentage table.
A useful pro forma has four properties:
- Dated: it states the capitalization record date and the scenario date.
- Defined: it labels whether each percentage is issued and outstanding, as-converted, or fully diluted.
- Traceable: every security and assumption ties to a ledger, plan, instrument, side letter, board approval, or term-sheet provision.
- Reconciled: share counts and ownership percentages total correctly, with rounding differences disclosed rather than hidden.
Current vs fully diluted vs pro forma cap tables
Many cap table errors start with the denominator. A founder quotes issued-and-outstanding ownership, an investor models fully diluted ownership, and both believe they are discussing the same percentage. Label the view before comparing numbers.
| View | What it answers | Typical contents | Common error |
|---|---|---|---|
| Current cap table | Who holds the company's securities now? | Issued common and preferred shares, option and warrant records, and outstanding convertibles, presented as of a stated date | Treating a summary spreadsheet as the definitive legal record |
| Issued and outstanding | What percentage of shares already issued does each stockholder own? | Issued common and preferred shares; excludes unexercised options and unissued pool shares from the denominator | Quoting the percentage as though no other securities can dilute it |
| Fully diluted | What would ownership look like if the defined potentially dilutive securities were counted? | Issued shares plus specified options, warrants, convertibles, and the unissued option pool | Failing to state exactly which securities the definition includes |
| Pro forma | What would the chosen fully diluted baseline look like after a proposed transaction? | Baseline capitalization plus conversions, pool changes, new-money shares, pro rata participation, and any modeled transfers | Mixing present facts with scenario assumptions without marking the difference |
The phrase fully diluted is not self-executing. A term sheet may define the pre-money capitalization to include an unallocated option pool, promised grants, or securities that another model excludes. Post-money SAFEs also use defined capitalization inputs that differ from older instruments. The Y Combinator Safe User Guide shows why the instrument's actual definition matters.
The operating rule is simple: put the denominator definition next to every ownership output. “Founder owns 60%” is ambiguous. “Founder owns 60% of post-money capitalization on an as-converted, fully diluted basis, including the 10% unissued pool” is reviewable.
What goes into a pro forma cap table?
Start with source records, not the last spreadsheet someone emailed. Fourscore Business Law's cap table primer distinguishes authorized shares, issued securities, options, warrants, and convertibles. They should not be collapsed into one generic “equity” row before their rights and conversion mechanics are understood.
Source records
- Certificate of incorporation or equivalent governing document, including authorized shares by class.
- Stock ledger and board-approved issuances of common and preferred stock.
- Equity incentive plan, granted options, exercised options, promised grants, and the unissued pool.
- SAFEs, convertible notes, warrants, side letters, and pro rata agreements.
- Prior financing documents, amendments, transfers, cancellations, repurchases, and secondary-sale records.
Financing assumptions
The proposed term sheet supplies the scenario: pre-money valuation, primary investment, option-pool target, the new preferred class, and any founder or investor secondary. The underlying instruments supply the conversion mechanics. Do not replace a defined SAFE or note formula with a generic shortcut because the shortcut produces a familiar percentage.
The main outputs are the price per share, conversion shares, pool top-up, new-money shares, post-money fully diluted shares, ownership by holder or class, and the number of additional authorized shares required before closing.
How to build a pro forma cap table in six steps
1. Freeze the record date
Save a read-only copy of the current capitalization and state its as-of date. Record transactions still in flight separately. Otherwise, a late option exercise or share cancellation can change the baseline while the financing model is being negotiated.
2. Reconcile every security
Tie issued shares to the stock ledger and approvals. Tie options to the equity plan and grant records. List each SAFE, note, warrant, and side letter separately before grouping identical terms. A useful control column names the source document and the date checked.
3. Define the pre-money fully diluted denominator
Write down what is included: issued shares, granted options, unissued pool, promised grants, warrants, SAFEs, notes, and any other convertible securities. If an item is excluded, say why. This definition drives the price per share and therefore every new share count.
4. Encode the financing assumptions
Separate facts from choices. Facts come from executed records. Choices include the proposed valuation, primary investment, pool target, pro rata participation, and secondary amount. Model a primary investment as cash to the company; a secondary transfer changes the holder, but does not increase the company's post-money cash.
5. Calculate the new capitalization
For a simplified priced round with no special conversion mechanics:
- Post-money valuation = pre-money valuation + primary investment
- Price per share = pre-money valuation / agreed pre-money fully diluted shares
- New investor shares = primary investment / price per share
- Post-money ownership = holder's as-converted shares / post-money fully diluted shares
These equations describe the base case. Convertibles, a pool top-up, warrants, pay-to-play terms, anti-dilution adjustments, or a mixed primary/secondary transaction can change the sequence or denominator.
6. Validate, version, and hand off
Confirm that all ownership percentages reconcile to 100%, subject only to disclosed rounding. Check that the company has enough authorized shares for conversions, the new class, and the pool. Change one material assumption at a time and compare scenarios. Protect formulas, flag hard-coded overrides, and give each version a date and assumption label.
The transaction version should then be reviewed by the company's counsel and relevant finance or accounting professionals. A cap table model can expose inconsistencies, but it cannot repair missing approvals or determine instrument rights by itself.
Worked pro forma cap table example
Assume a startup is negotiating a $5 million primary Series A at a $20 million pre-money valuation. Its agreed pre-money fully diluted capitalization is 10 million shares before any new option-pool top-up.
| Pre-money holder or reserve | Shares | Pre-money fully diluted ownership |
|---|---|---|
| Founders | 8,000,000 | 80% |
| Granted employee options | 500,000 | 5% |
| Unissued option pool | 500,000 | 5% |
| Seed investor | 1,000,000 | 10% |
| Total | 10,000,000 | 100% |
Base case without an option-pool top-up
The base calculation is:
- Price per share: $20,000,000 / 10,000,000 = $2.00.
- New Series A shares: $5,000,000 / $2.00 = 2,500,000.
- Post-money fully diluted shares: 10,000,000 + 2,500,000 = 12,500,000.
- Post-money valuation: $20,000,000 + $5,000,000 = $25,000,000.
| Holder or reserve | Post-money shares | Post-money fully diluted ownership |
|---|---|---|
| Founders | 8,000,000 | 64% |
| Granted employee options | 500,000 | 4% |
| Unissued option pool | 500,000 | 4% |
| Seed investor | 1,000,000 | 8% |
| Series A investor | 2,500,000 | 20% |
| Total | 12,500,000 | 100% |
The new investor's 20% follows directly from $5 million divided by the $25 million post-money valuation. The same result appears in the share-count calculation because the model uses one consistent denominator.
What changes with a 10% post-money option pool?
Now assume the term sheet requires the unissued option pool to equal 10% of post-money fully diluted capitalization, and the pool increase is included pre-money. The existing unissued pool is only 500,000 shares, so the model must solve for a top-up before calculating the share price.
Let T be the additional pool shares. Because the $5 million investor owns 20% post-money, post-money shares equal 1.25 times the adjusted pre-money fully diluted shares:
(500,000 + T) / [1.25 × (10,000,000 + T)] = 10%
Solving gives a top-up of approximately 857,143 shares.
- Adjusted pre-money fully diluted shares: 10,857,143.
- New unissued pool: 500,000 + 857,143 = 1,357,143.
- Adjusted price per share: $20,000,000 / 10,857,143 = approximately $1.8421.
- New Series A shares: $5,000,000 / $1.8421 = approximately 2,714,286.
- Post-money fully diluted shares: approximately 13,571,429.
| Holder or reserve | Post-money shares | Post-money fully diluted ownership |
|---|---|---|
| Founders | 8,000,000 | 58.95% |
| Granted employee options | 500,000 | 3.68% |
| Unissued option pool | 1,357,143 | 10.00% |
| Seed investor | 1,000,000 | 7.37% |
| Series A investor | 2,714,286 | 20.00% |
| Total | 13,571,429 | 100.00% |
The investor still owns 20%, but the founders fall from 64% in the no-top-up base case to approximately 58.95%. The difference is not a modeling curiosity. It is the economic effect of placing the pool increase in the pre-money capitalization: existing holders absorb the extra dilution.
Before negotiating that provision, model the expected hiring plan rather than accepting a round-number pool target without context. Also verify whether the term refers to the total pool or only its unissued portion; those are different calculations.
How a VC reviews a cap table in five minutes
A first-pass cap table review is a consistency test. The investor is looking for a clean ownership story, but also for assumptions that could change price, dilution, control, or closing mechanics.
| Check | Question | Why it matters | Red flag |
|---|---|---|---|
| Baseline reconciliation | Does the model tie to the stock ledger, option records, and outstanding instruments? | Missing securities change every downstream percentage | A “plug” row with no source document |
| Denominator | Is the same fully diluted definition used for valuation and ownership? | A denominator switch can overstate founder or investor ownership | Issued-and-outstanding percentages beside a fully diluted price calculation |
| Convertibles | Is each SAFE, note, and warrant modeled from its actual terms? | Caps, discounts, interest, MFN clauses, and instrument vintages can produce different conversion outcomes | All convertibles grouped under one assumed rate |
| Option pool | Is the target pre- or post-money, and does it mean total or unissued pool? | The placement determines who absorbs dilution | Pool top-up presented as having no economic cost |
| Pro rata and secondaries | Are follow-on participation and secondary transfers separated from primary cash? | They affect holder shares and company proceeds differently | Secondary consideration counted in post-money company cash |
| Authorized shares | Are enough shares authorized for conversions, the new class, and the pool? | A mathematically correct model can still be impossible to close without approvals | Post-closing shares exceed the charter authorization |
| Economics vs control | Are liquidation, voting, protective, and board rights tracked outside simple ownership percentages? | Equal share counts do not always mean equal economics or control | One percentage used as a proxy for every right |
| Sensitivity | Does the model still reconcile when a material assumption changes? | Scenario testing exposes hard-coded formulas and negotiation leverage | Totals fail or ownership jumps inexplicably after one input changes |
This review belongs inside broader venture capital due diligence. Investors also look beyond ownership percentages to round prices, preferences, and dilution. The Breaking Into Wall Street cap table tutorial shows how those inputs change both financing and exit analysis.
For a candidate preparing for an investment case study, the strongest observation is rarely “the founders own X%.” It is the causal statement behind the number: for example, “founder ownership drops an additional five points because the 10% unissued pool is created pre-money.” That shows you can read the financing mechanics, not just the output table.
When researching how different investors approach ownership and stage, use the Venture Capital Careers directory of venture capital firms as a starting point. The cap table itself remains company-confidential unless the company chooses or is required to disclose it.
Common cap table mistakes
- Mixing issued and fully diluted ownership. Put the view and denominator in the column heading, not in a footnote nobody reads.
- Omitting promised grants or the unissued pool. Both can affect a negotiated pre-money capitalization even though no shares have been issued.
- Using one generic conversion rule. SAFEs, convertible notes, and warrants must be modeled from their actual documents. The distinction between a pre-money and post-money SAFE can materially change the result.
- Counting secondary proceeds as company cash. A secondary changes who owns existing shares. A primary issuance adds cash and shares to the company.
- Ignoring pro rata rights or side letters. An investor exercising pro rata rights may purchase additional shares and change the allocation of the round.
- Hard-coding a number to make the model balance. Circular calculations can be legitimate; unexplained overrides are not. Cooley's sample pro forma workbook explicitly warns users to double-check circular-reference calculations.
- Stopping when ownership totals 100%. A balanced model can still use the wrong source data, exceed authorized shares, or misread an instrument.
- Treating ownership as exit proceeds. Preferred-stock economics can change payouts. Model that separately in a liquidation preference or waterfall analysis.
Spreadsheet or cap table software?
A spreadsheet is often the better scenario tool when the company is early, the holder count is manageable, and the reviewer needs to inspect every formula. It is easy to duplicate a base case, change one assumption, and compare outcomes.
Dedicated cap table software becomes more useful as the company adds holders, grants, exercises, cancellations, multiple financing rounds, stakeholder reporting, and a longer audit trail. The system of record and the transaction model may still serve different purposes: one maintains capitalization data; the other tests a proposed deal.
Choose based on control needs, not polish. Software cannot fix a missing grant approval, an omitted side letter, or an incorrect interpretation of a SAFE. A spreadsheet is not transparent if critical formulas are hidden or hard-coded. In either format, the quality standard is the same: traceable inputs, explicit assumptions, reproducible calculations, and professional review before the model is used for a transaction.
Frequently asked questions
Is a pro forma cap table legally binding?
Generally, no. It is a planning and transaction model based on stated assumptions. Ownership and security rights depend on the company's governing records, approvals, securities, and executed transaction documents under applicable law. Use the model to explain and test the deal, then have qualified professionals review the transaction version.
Who prepares the pro forma cap table?
Founders or finance and operations teams often prepare early scenarios. For a financing, company counsel commonly works with the company and investors to reconcile the capitalization and produce or review the closing model. Accountants or other advisers may be involved when valuation, tax, or financial-reporting issues require them.
How often should a cap table be updated?
Update the current capitalization after every approved equity transaction, including issuances, grants, exercises, cancellations, conversions, transfers, repurchases, and financings. Create a new pro forma version whenever a material assumption changes. Never overwrite the agreed base case without preserving the prior version.
Are private-company cap tables public?
Usually not. Private-company cap tables are generally confidential and shared selectively with management, counsel, investors, auditors, acquirers, and other authorized parties. Some capitalization information may later appear in regulatory filings, litigation, or public-offering documents.
Do SAFEs belong on a cap table before they convert?
They belong in the capitalization record and pro forma input inventory even before they become shares. Presentation varies by system and purpose, but omitting them from a financing model would understate potential dilution. Use the executed instrument's conversion terms, not an assumed ownership percentage.
Make the model reviewable
Before sending a financing model to an investor, reconcile the source records, label the fully diluted denominator, run the base case and the option-pool or conversion sensitivities, and verify that every percentage ties back to a formula. Then compare the ownership result with the economic and control terms in the term sheet.
The most useful pro forma is not the one with the most tabs. It is the one another reviewer can reproduce from the same records and assumptions.
