A pro forma cap table is essentially a spreadsheet which predicts the future capital structure of an enterprise after a certain initial investment and subsequent increase in earnings. The spreadsheet simultaneously combines data from the business owner's personal accounts to summarize the current share of profits, the amount of investors' equity, and the likelihood of any future dilution. By calculating these key ratios, it is then possible to estimate the effect of multiple scenarios on the company's capital structure. This allows one to more precisely pinpoint problems with financing decisions or other areas where the entrepreneur may be able to improve profitability by increasing efficiency in managing financial operations. It also allows one to make changes more quickly than if one were trying to make changes to a traditional business cash flow model.<br/><br/>There are several main features of a pro forma cap table, one of which involves the use of an exponentially weighted asset valuation model. Asset valuation is typically used to provide an accurate measure of value for any company's tangible assets. The exponential weighted asset valuation model allows the investor to multiply the current value of the firm's equity by the total current worth of all tangible assets. This quantity then becomes an numerator to determine the expected value of the firm's stock.<br/><br/>In many instances, a shareholder will purchase a number of shares of a company's stock with the intent of ultimately selling all of their shares. When an investor purchases a large number of shares through an offering, they will often choose to sell their shares as a group in what is called a "follow-on" offering. This allows the shareholder to effectively eliminate their risk in purchasing shares directly, as their investment is diluted to a very small fraction of its original value. Conversely, when an investor purchases a large number of units through an initial offering, their ability to act as a seller will be limited.<br/><br/>One key feature of a pro forma cap table that differentiates it from other financial reporting tables is the inclusion of all capitalized amounts in the table. Ordinarily, all outstanding shares would be reflected as an intangible asset in your balance sheet. However, since <a href="https://two12.co/409a/">409a audit</a> represent the actual ownership interest in the company, there are certain restrictions placed on how these units can be measured and reported on your balance sheet. Ordinarily, the cap table would include all capitalized amounts such as accounts receivable, accrued expenses and other similar items. However, this information must be provided separately for capitalized shares and common stock holders.<br/><br/>For cap tables that are used in initial offerings and follow on offerings, there is additional information that must be provided in order to determine the value of the shares. A typical spreadsheet used by an investor will have several worksheets that allow the investor to report the market value of the shares of stock. This value is determined using the current price per share and divided by the total number of shares outstanding. There are a few different ways that these values can be presented and they must be carefully monitored and reported on a regular basis. In most instances, investors will provide a company with an estimate of their pro forma cap table as well as the modified adjusted gross profit and net income per share.<br/><br/>Investors who are working with an underwriter on a particular offering may also need to provide information regarding the financing that will be required for the business. One of the biggest reasons for investors to use the pro forma cap table as it relates to financing for the business is because of the restrictions that are placed on outside financing. Most private placements require the disclosure of all forms of financing and preferred financing as it relates to the financing required for the business.<br/><br/>Another reason for the investors to be concerned with the pro forma cap table relates to the equity dilution that is associated with a private placement. Dividends are one of the main features that attract investors to placing their money in a business. However, if an investor is unable to receive dividends on their investment for several years then they are not going to be able to enjoy the benefits of capital appreciation as it relates to their purchase. This is why it is so important for the business to be generating positive cash flow during this period of time.<br/><br/>It is very important for startups to understand the risks and costs that are involved with capital appreciation. The creation of the pro forma cap table allows for the investors to make adjustments to the business if necessary and it also allows the startups to create a cap table that is independent of any outside funding sources. <a href="https://two12.co/blog/just-raise-a-round-dont-make-this-common-mistake/">Two12</a> means that the startups will only be paying for the services that they receive. This is something very important for a startup to consider as it relates to capitalizing their ventures.