Calculate convertible note conversion terms including discount rate, valuation cap, interest accrual, and resulting equity ownership.
A convertible note is a loan that converts into shares at the next priced financing, and this tool computes what that conversion produces: the price per share the noteholder pays, the shares received, and the ownership bought. It applies the discount and the valuation cap as alternatives, adds accrued interest to the principal, and divides by the post-round share count. The surprise: the discount cuts the price, not the share count, so a 20% discount delivers 25% more shares than an undiscounted purchase.
A concrete input and expected output from the current implementation.
Input
$50,000 note, 8% simple interest, converts after 18 months; 20% discount; $2.5M valuation cap; 5,000,000 fully diluted shares before the round; round price $1.00; round raises $1,000,000
Expected output
Conversion price $0.50 per share (cap applies). 112,000 shares received. Ownership after the round: 1.83%.
The cap price, $2.5M divided by 5,000,000 shares, is $0.50, below the $0.80 discounted price, so the cap governs. Accrued interest of $6,000 raises the conversion amount to $56,000, which buys 112,000 shares at $0.50. After the round the company has 6,112,000 shares: the 5,000,000 pre-round shares, the 1,000,000 bought by new investors at $1.00, and the noteholder's 112,000. The noteholder's 112,000 shares are 1.83% of the 6,112,000 outstanding.
Two candidate prices are computed: the discounted round price (round price times one minus the discount) and the cap price (cap divided by fully diluted shares before the round). The conversion uses the lower of the two, because both terms exist to favor the investor. The cap only binds when the round values the company above the cap.
Simple interest accrues on the principal from issue to conversion and is added before converting, so the note converts on principal plus accrued interest, not the original amount. Shares equal that total divided by the conversion price. Ownership is those shares divided by all shares outstanding after the round, including the new investors. Because the discount cuts the price, a 20% discount means 25% more shares than converting at full price.
No. They are alternatives, not stacked benefits. The note converts at whichever price per share is lower - the discounted round price or the cap price - which is the better deal for the investor. The cap only affects the price when the round's valuation exceeds it; otherwise the discount alone applies.
It is added to the principal and converts into shares with it, so the investor converts the full amount owed, not the original investment. Some note documents allow the company to pay the interest in cash instead. If the note matures without a qualifying financing, the company typically owes the principal plus accrued interest back in cash.
The example and behavioral notes were checked against the browser implementation. Standards and primary references below define the relevant format, formula, or platform behavior.
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