Home / CAP TABLE #6: Deal calculations in the cap table

Deal calculations in the cap table

Cap table course - Part 6

Understand what is in the calculations sheet of the pro cap table.

  • Part Six of Pro Cap Table Course: Focuses on deal calculations, offering a step-by-step guide to creating a comprehensive capitalization (cap) table.
  • Cap Table Sheet Overview: Includes a calculations tab that serves two main purposes: performing central calculations for the model and providing an analytical summary of crucial data.
  • Details of Calculations: The ‘Calculations’ sheet is integral for all deal calculations without any assumptions, linking to and feeding other sheets in the model.
  • Key Terms Section: Outlines essential economic terms affecting pre and post-money valuations, including adjustments for warrants, ESOP, and convertible notes.
  • Accuracy Checks: Features a section for verifying input accuracy, with indicators for balance and minor discrepancies.
  • Pro-Rata Rights Explained: Discusses how pro-rata rights enable investors to maintain their percentage ownership in subsequent funding rounds.
  • Pre-Money Outstanding Capitalization: Provides insights on share price calculation based on shares outstanding before a deal, using a time-based modeling approach.
  • Ownership Breakdown: The final section illustrates ownership percentages for different share classes, aiding in understanding relative ownership stakes.
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CAP TABLE #6: Deal calculations in the cap table

This is the 6th part of the Pro Cap Table training course, focusing on deal calculations. This series covers the essentials, guiding you through each worksheet, enabling you to construct a top-notch cap table.

Overview of the cap table sheet

The calculations tab of the cap table serves two purposes:

  1. Calculations: Centralizes mathematical operations that feed into other sheets in the model.
  2. Analysis: Offers a consolidated summary of key aspects pertinent to your interests.

Details of the Calculation Sheet

The ‘Calculations’ sheet is where all fundraising deal calculations occur. It’s crucial to note that this sheet doesn’t contain assumptions, so avoid editing it.

This sheet integrates links from each worksheet to perform the calculations, which then inform the rest of the model.

Terms

The initial section of the sheet presents crucial economic terms influencing both pre and post-money valuations.

Adjustments for warrants, ESOP, and convertible notes are accounted for here.

Each fundraising series, from A to I, is displayed in a singular table.

Checks

Following the main terms, there are three checks, indicating the accuracy of your inputs:

  1. All OK: If every cell reads ‘OK’, your model is balanced.
  2. A number: There will be a plus or minus number of shares to tell you how far the model is off from balancing. This is not an issue if the number is tiny!

You can see in the example that there is a ‘-1’ in some cells. “Chill Daddy”, this is fine.

Fractional shares often require rounding during deals, leading to negligible disparities. It’s your lawyer’s job to handle this during share certificate issuance. Rather than obscuring these minor discrepancies through rounding, this model makes them visible.

As a side note- if you run experiments and forecast future raises, you will likely see these errors but chill out. You didn’t input all the details to the 4th decimal point as you might need to, so who cares since you are testing.

Pro-Rata

A pro-rata right is an agreement that allows investors to maintain their percentage ownership in a company by participating in future funding rounds.

If investors do pro rata, or can, this is something you want to know. This section provides a concise overview of your pro-rata situation.

Pro-rata example

Consider a scenario where a Series-B investor exercises their 31.3% pro-rata right.

If they invest $2 million, the round’s maximum could reach $2.9 million, ensuring the investor maintains their ownership stake.

Note that round size adjustments can alter the dilution, impacting the required pro-rata.

Pre-Money Outstanding Capitalization (shares)

To calculate the price per share, you need to know the number of shares outstanding immediately before the deal is done.

This section shows you the situation the day before a deal happens which helps to calculate the Terms section (the top part of this sheet).

This model takes a ‘time-based’ approach to modelling (which is why the formulas are so long!). Every change in the model is accounted for up until the day before the transaction. Something that happens on the day or the day after a deal doesn’t affect the deal under consideration.

You can see in the example below that it looks like a waterfall and you can add up all the shares as they happened to get the Pre-Money Outstanding Capitalization used in the calculations.

Pre-Money Outstanding Capitalization (%)

Finally, the last part of the deal calculations shows you the ownership for each class of share. There is a stacked chart and a table with the % ownership.

Rather than looking at the shares above, you can look at the % and see the relative ownership.

Closing

This sheet looks complicated and there is a lot I had to figure out to make it! But fortunately for you, you don’t need to do anything but look at it and understand.

Whilst it’s ideal to understand the formulas to build your knowledge, you don’t have to.

There we go. Let’s get moving to the next episode.

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14 parts in this guide

You can jump to a section if you prefer:

  1. What is a cap table and other important questions
  2. Cap table dilution step-by-step example
  3. Cap table dilution math
  4. Starting the cap table (The drop-down menus we need)
  5. Shareholders sheet
  6. Deal calculations
  7. The cap table sheet
  8. The assumptions sheet
  9. Individual shareholder returns sheet
  10. Returns waterfall calculation
  11. The ESOP sheet
  12. The Common sheet
  13. The convertible notes and warrants sheet
  14. The preference shares sheets (From Series A to I)

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