Why You Should Consider the Pro Forma Cap Table for Small Companies
A pro forma cap table shows the financial data of a company in present and future as a potential acquisition. The spreadsheet compares current assets and current liabilities, to summarize the potential dilution of holdings. It then calculates an enterprise value using the discount rate used in determining capital gains and deducts expenses from the current value to estimate future earnings.
Investors buy shares as part of the borrowing process to finance growth or balance sheet requirements. The purchase price per share (PSPS) will represent the total cost of all outstanding shares at the time of the purchase. It is designed to facilitate share ownership analysis by the accredited investor. This type of financing round involves two parties with an interest in the acquisition. One of the parties has direct ownership of the shares while the other party is acting as an agent on behalf of the purchaser and is responsible for ensuring that there are no defaults on the loan. The agent can be either a direct holder of the shares or an indirect holder who will sell his shares to the purchaser.
The pro forma cap table can be used by private investors such as institutional investors and hedge funds as well as by individual institutional investors such as individual pension funds. In this type of spreadsheet, one column lists the share owner information including name, address and investment type. The second column shows the net share holder information including ownership position, number of shares, current and maximum shares owned, age of the shares, and market value of shares. The third and fourth columns of the spreadsheet display the loan and share owner information. The fifth and sixth columns allow the investors to add new loans to the portfolio by entering additional terms such as term of the loan or cash down payment.
Private investors can use the pro forma cap table to make rate choices on shares that they own in companies that they are invested in as well as their own funds. The spreadsheet allows the investors to enter the rate they are willing to pay for the stock given to them and to compare it to the historical average of the stock's price to determine whether to purchase or sell shares. It also allows the investors to make decisions based on short term factors such as whether they are looking at gains versus losses.
Hedge fund investors can use the pro forma cap table to make decisions on stocks held by the managers of the fund. This spreadsheet is useful because it provides the investors with a way to calculate the gain or loss to be expected from buying or selling certain shares. It enables the hedge fund managers to determine the amount to buy or sell a specific number of shares at a specific price. This information is important for the fund manager to ensure that the investors' capital gains are adjusted for the change in market prices. Hedge fund managers also use the spreadsheet to identify which investments are growing in value and which are not growing.
Private investors can use the pro forma cap table to help determine the total cost of financing the investment which could include the loan or lease payment. This valuation will need to be based on all of the variables that are related to the financing such as interest rates, capital appreciation and terms of the financing. This valuation of financing will allow the investor to determine how much the investor will be able to deduct from their income tax on the basis of capital gains. The valuation of the loan or lease payment will depend on a number of factors, including the interest rates and other variables.
An investor who is financing a small cap transaction will still need to calculate the cap table even if they have only a small stake in the company. This is because the amount of financing needed will be less than the amount of capital that would be raised. In order to calculate the pro forma cap table an investor will need to add the current market value of the business along with the amount of financing required. This is a calculation that will never be easy but it is still necessary for investors. Dilution will occur when the current value of the business is less than the amount of financing needed.
When an individual or institutional investor is looking at the pro forma cap table there are many things that need to be considered. A person will need to consider the amount of shares that are being raised as well as the price per share. It may be possible to find more shares if the startup is valued lower than its fair market price per share. Investors should be aware of this potential as well as the risks that could be associated with these shares.