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  • Convertible Notes Calculation

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    shreyanshagrawal
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    Seed investors are considering a $750,000 convertible note that will convert to equity at the lower of 80% of the share price in the next financing round where at least $4 million is raised, or a $5 million pre-money valuation cap. This note will convert using either a $10 million post-money valuation at which Series A investors receive 40%, or a $20 million post-money valuation at which Series A investors receive 20%. Calculations are required to determine if the note converts at the capped $5 million pre-money valuation or at the implied share price in each financing scenario.

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    Seed investors are considering a $750,000 convertible note that will convert to equity at the lower of 80% of the share price in the next financing round where at least $4 million is raised, or a $5 million pre-money valuation cap. This note will convert using either a $10 million post-money valuation at which Series A investors receive 40%, or a $20 million post-money valuation at which Series A investors receive 20%. Calculations are required to determine if the note converts at the capped $5 million pre-money valuation or at the implied share price in each financing scenario.

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    © All Rights Reserved
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    22 views1 page

    Convertible Notes Calculation

    Uploaded by

    shreyanshagrawal
    Seed investors are considering a $750,000 convertible note that will convert to equity at the lower of 80% of the share price in the next financing round where at least $4 million is raised, or a $5 million pre-money valuation cap. This note will convert using either a $10 million post-money valuation at which Series A investors receive 40%, or a $20 million post-money valuation at which Series A investors receive 20%. Calculations are required to determine if the note converts at the capped $5 million pre-money valuation or at the implied share price in each financing scenario.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    1.

    Seed investors are considering $750,000 investment in the form of a convertible note, which will
    convert ay the lower of
    a. 80% of the price per share in the next equity financing, or
    b. A pre-money valuation of $5 million.
    The next equity financing is defined as a round of financing where at least $4 million is raised,
    including the conversion of $750,000 convertible note.

    Consider two situations


    1. One where the Series A investors take 40% for a $4 million investment at $10 million post
    money valuation, and
    2. Second, where the Series A investors take 20% for a $4 million investment at $20 million
    post-money valuation.
    Assume, there are 1 million shares for founder and management. Calculate whether 80% of the
    price per share implied by the $10 million ($20 million in second case) post-money valuation is
    more or less than $5 million cap in the first situation and second situation.

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