Pro-forma cap tables for fundraising: calculate dilution and the true cost of capital

How to Create a Pro Forma Cap Table for Fundraising

When negotiating a funding round, your focus is often on the pre-money valuation and investment amount. However, the real impact is detailed in the pro-forma capitalization table, which projects your company's ownership after the deal. Miscalculations here can cause unexpected dilution for founders and the team. Understanding how to create a pro forma cap table for fundraising is more than a financial exercise; it is a critical tool for managing your company's future. It translates deal terms into a clear picture of ownership, reveals the true cost of capital, and helps you negotiate with confidence. This guide provides a step-by-step process for building one in a spreadsheet.

Understanding the Pro-Forma Cap Table

A pro-forma capitalization table is a forward-looking model. While your current cap table is a static record of who owns what right now, the pro-forma version models the future. It answers the question: after the new investment, the conversion of all SAFEs or convertible notes, and the creation of a new employee option pool, who will own what percentage of the company? This distinction is fundamental. The pro-forma model is your primary tool for analyzing equity dilution, understanding the startup ownership structure, and stress-testing investor share scenarios. It transforms abstract negotiation points like valuation caps and option pool sizing into concrete ownership percentages, making it an indispensable part of any fundraising process from pre-seed to Series B.

Step 1: Document Your Current Capitalization and Ownership Structure

Before you can project the future, you must have an accurate picture of the present. Your current cap table is the foundation for all subsequent calculations. This is not just a list of names; it is a detailed ledger of every share issued. At a minimum, your spreadsheet should have columns for each shareholder's name, the number of shares they hold, and the type of security, such as Common Stock or Preferred Stock. Summing the shares column gives you your total current outstanding shares. Answering "Who owns what right now, before the new money comes in?" must be precise. For a SaaS or Deeptech startup, this includes founders, early employees who have exercised options, and any angel investors from previous rounds. Getting this wrong will invalidate every subsequent calculation, so you must triple-check your numbers before moving forward.

Step 2: Define the Key Inputs of the Priced Round

With your current cap table established, the next step is to define the terms of the new financing round. These are the key variables you are negotiating with new investors, and they form the core inputs for your model. There are three primary components.

• Pre-Money Valuation: This is the agreed-upon value of your company before the new investment is added.
• New Investment Amount: This is the total cash you are raising in this round.
• New Employee Option Pool: Investors will typically require you to create or increase an option pool to attract future talent. For a Series A, investors usually expect the new option pool to be 10-15% of the post-money capitalization.

Let's begin a running example for a SaaS company.

• Current State: 10,000,000 fully diluted shares outstanding (founders, angels, existing options).
• The Deal:
  • New Investment: $2,000,000
  • Pre-Money Valuation: $10,000,000
  • New Option Pool Target: 10% of the post-money shares.

These inputs are the starting point of any negotiation and the primary drivers of your fundraising impact on cap table calculations.

Step 3: Modeling SAFE and Convertible Note Conversion

This step is often the most complex, as it involves translating convertible instruments into actual shares. Understanding how your existing SAFEs and notes turn into equity is a multi-step calculation that significantly affects founder equity percentage. You must model each instrument separately, as they often have different terms.

The key is to calculate the "conversion price" for each SAFE or note. This price is determined by the lesser of two values: the price derived from the valuation cap or the price derived from a discount on the current round's price.

1. Calculate the New Share Price: This is the Pre-Money Valuation divided by the Pre-Money Fully Diluted Shares.
2. Calculate Conversion Price per Instrument: For each note or SAFE, you calculate two potential prices.
   • Cap Price: Valuation Cap / Pre-Money Fully Diluted Shares.
   • Discount Price: New Share Price * (1 - Discount Rate).
   • The effective conversion price is the lower of these two.
3. Calculate Shares Issued: Investment Amount / Effective Conversion Price = New Shares for the SAFE or Note Holder.

Running Example Continued:
Our SaaS company has two SAFEs: a $250k pre-money SAFE with a $5M cap and 20% discount, and a $250k post-money SAFE with an $8M cap.

• New Share Price: $10,000,000 / 10,000,000 shares = $1.00/share.
• Pre-Money SAFE Conversion:
  • Cap Price: $5,000,000 / 10,000,000 shares = $0.50/share.
  • Discount Price: $1.00 * (1 - 0.20) = $0.80/share.
  • The SAFE converts at the lower price of $0.50. It receives $250,000 / $0.50 = 500,000 shares.

Here, the critical distinction between pre-money and post-money SAFEs becomes clear. According to Y Combinator's documentation, post-money SAFEs convert in a way that dilutes new investors. Pre-money SAFEs and all convertible notes convert based on the pre-money capitalization. Post-money SAFEs, however, convert based on the post-money capitalization. This means their ownership percentage is fixed and they dilute everyone, including the new Series A investors. Modeling this correctly is vital.

Step 4: Assembling the Final, Investor-Ready Picture

Now you can assemble all the pieces to see the final, investor-ready picture. This involves calculating the shares for the new investors and the new option pool, then summing everything to get the final ownership percentages.

1. Define Post-Money Capitalization: This is the sum of Pre-Money Shares, New Investor Shares, all SAFE and Note Conversion Shares, and the New Option Pool Shares. This creates a circular reference, as the option pool size depends on the total. You can solve this with algebra or by using an iterative goal-seek function in your spreadsheet.
2. Calculate Shares for New Investors: New Investment / New Share Price. In our example, this is $2,000,000 / $1.00 = 2,000,000 shares.
3. Calculate the New Option Pool Size: The pool must equal the target percentage (e.g., 10%) of the total post-money shares. The formula is: (Pre-Money Shares + New Investor Shares + Converted Shares) * (Target Pool % / (1 - Target Pool %)).

Running Example Finalized:

• Pre-Money Shares: 10,000,000
• New Investor Shares: 2,000,000
• Pre-Money SAFE Shares: 500,000
• Post-Money SAFE Shares: This calculation is more complex, but for this example, let's assume it converts to 357,143 shares to maintain its fixed percentage.
• Total pre-pool shares: 12,857,143
• New Option Pool Shares: 12,857,143 * (0.10 / (1 - 0.10)) = 1,428,571 shares.
• Total Post-Money Shares: 14,285,714

Final Pro-Forma Cap Table Summary:

• Founders/Angels/Old Pool: 10,000,000 shares (70.0%)
• New Series A Investor: 2,000,000 shares (14.0%)
• SAFE 1 (Pre-Money): 500,000 shares (3.5%)
• SAFE 2 (Post-Money): 357,143 shares (2.5%)
• New Option Pool (unissued): 1,428,571 shares (10.0%)
• Total: 14,285,714 shares (100.0%)

This summary clearly answers the question: after everything is calculated, who owns what percentage of the company?

Step 5: Use Your Model for "What-If" Investor Share Scenarios

Building a static pro-forma cap table is valuable. Building a dynamic one is a strategic weapon in negotiations. Once your model is built in a spreadsheet, you can easily change your input variables like Pre-Money Valuation, New Investment, or Option Pool size to see the immediate impact on dilution. This is how you move from reacting to investor term sheets to proactively shaping them.

This dynamic model is the core of an effective equity dilution calculator. Lacking these models is a major pain point that can leave founders unable to confidently negotiate terms. How does your ownership change if you negotiate a higher valuation or a smaller option pool? Your model can tell you in seconds.

Scenario A: Valuation Impact

Using our SaaS company example, what if you successfully negotiate a $12M pre-money valuation instead of $10M? The new share price increases to $1.20 ($12M / 10M shares), and the new investor receives fewer shares for their $2M (1,666,667 shares). The pre-money SAFE still converts at its $0.50 cap price, but all existing shareholders are diluted less by the new money. As a result, your founder equity percentage would increase.

Scenario B: Option Pool Impact

What if you negotiate the new option pool down to 8% post-money instead of 10%? The total number of post-money shares would decrease because the new pool would be smaller. Every existing shareholder's final ownership percentage would increase slightly, as less equity is being set aside for future hires. Founders who model these scenarios can quantify the trade-offs. You could argue, for example, that a smaller pool is sufficient for the next 18 months of hiring, preserving equity for a future round's expansion.

Practical Takeaways for Founders

A detailed pro-forma cap table is an essential skill for any founder navigating the fundraising landscape in the UK or the US. It demystifies the mechanics of dilution and provides a clear framework for modeling equity rounds.

First, start with a perfect current cap table, as any errors here will compound. Use a simple spreadsheet for this stage. While tools like Xero or QuickBooks track your cash, cap table management requires a dedicated model. If you are a UK company using Enterprise Management Incentive (EMI) schemes, be sure to check current HMRC guidance.

Second, isolate your assumptions. Your pre-money valuation, new investment, and option pool size are variables. Build your model so you can change them easily and see the direct impact on everyone's ownership, especially the founder equity percentage.

Finally, use the model as a negotiation tool. By running what-if scenarios, you can enter discussions with investors fully aware of how each term affects your stake. You can suggest a higher valuation and show its impact, or debate the option pool size with data, not just feelings. This preparation transforms complex negotiations from a source of anxiety into a structured conversation about the future of the company you are building. For a broader overview, see our guide to cap table basics.

Frequently Asked Questions

Q: What is the primary difference between a pre-money and post-money SAFE?
A: A pre-money SAFE converts based on the pre-money valuation, diluting founders and prior investors. A post-money SAFE, as defined by Y Combinator, fixes the holder's ownership percentage. This means it converts based on the post-money capitalization, diluting everyone, including the new investors in the priced round.

Q: Can I use accounting software for my pro-forma cap table?
A: While tools like QuickBooks or Xero are essential for financial tracking, they are not designed for cap table management. For modeling fundraising rounds and dilution, a detailed spreadsheet is the standard tool for early-stage companies before they adopt specialized cap table software.