Conversion Discount Convertible Note

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The Basics of Convertible Notes: Convertible Note Terms

(6 days ago) Jul 13, 2018 · A conversion discount refers to the negotiation of a lower share price when a convertible note is converted to stock. Convertible note debt typically converts into equity in the next preferred round of financing, a series seed A, B, C, etc. With a conversion discount, more stock is being bought with less cash.

https://discover.shareworks.com/a-private-company/the-basics-of-convertible-notes-part-1-convertible-note-terms

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Convertible Note | Examples and How It Works

(4 days ago) Oct 27, 2017 · More often than not though, convertible notes have both a valuation cap and discount and will convert using whichever method gives the investor a lower price per share: Combining our previous examples, let’s say an issuer raises its seed round by issuing a convertible note with a $4M valuation cap and a 20% discount.

https://www.seedinvest.com/blog/angel-investing/how-convertible-notes-work

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Conversion Discounts in Convertible Notes

(3 days ago) Dec 18, 2009 · The majority of convertible note deals I see have the conversion discount set at a fixed percentage somewhere between 10% and 40%. Occasionally, I have drafted conversion discounts that increase over periods of time. For example the conversion discount may be: (i) 15% if the Series A round occurs within 6 months of the convertible note investment;

https://startuplawyer.com/seed-rounds/how-to-set-conversion-discounts-in-convertible-notes

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How To Set the Price Cap in a Convertible Note Round ...

(6 days ago) Sep 16, 2016 · To sweeten the deal, the convertible note will typically include what’s known as a conversion discount (also, less often warrants are offered in lieu of a discount). This is the discount rate that is applied to the company’s valuation for the purposes of calculating the conversion price for the notes.

https://www.startupblog.com/the-convertible-note-price-cap/

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Convertible note conversion math at Series-A. You don’t ...

(6 days ago) May 21, 2018 · The convertible note from angels is structured up as a: $1m convertible note (with some interest rate. Let’s assume it adds up to $1m to keep simple where we can) 30% discount rate (Yeah, not...

https://medium.com/@adjblog/convertible-note-conversion-math-at-series-a-you-dont-know-how-it-really-works-d95ca025cb55

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Beware the Tax Consequences of the Convertible Note

(2 days ago) The note is convertible into the next round of stock at the time that stock is issued, usually at a discount from the price of the note. Often sophisticated investors will insist on a maximum valuation for the conversion, or a “cap.” In this case the note converts at the lesser of the cap or the discounted price. A Convertible Note is not Stock

https://www.angelcapitalassociation.org/blog/beware-the-tax-consequences-of-the-convertible-note/

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Numerical Example: $25k convertible note with $5M cap, 20% ...

(1 days ago) Let’s do numerical example ignoring any accrued interest: 1. You invest $25k in a startup’s seed round using a convertible note with a $5M cap, 20% discount 2. If, at the Series A, the startup raises money from a venture capital firm that invests at a pre-money valuation of $10M with a per share price of $5.00 IF we apply the discount, the price per share would be $4.00/share …

https://fundersclub.com/learn/convertible-notes/convertible-notes-numerical-examples/convertible-note-cap-discount/

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How Should the Conversion Discount for Convertible Notes ...

(2 days ago) Sep 29, 2016 · Conversion discounts are often included in a convertible bridge note, specifying a discount rate that is applied to the company’s valuation for purposes of calculating the conversion price.

https://www.startupblog.com/selecting-the-right-conversion-discount-in-convertible-notes/

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Convertible Notes - All you need to know about Convertible ...

(2 days ago) Dec 29, 2020 · Convertible Notes Discount. As early backers of the company convertible note lenders normally get discount between 10% and 30% on the shareprice of the next financing round. The conversion price is calculated by subtracting the agreed discount from the share price paid in the equity round (or exit transaction) where the conversion happens.

https://foundersnextlevel.com/convertible-notes

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Valuation Caps and Conversion Discounts - IPOhub

(7 days ago) For example, a convertible note with a 20% discount allows convertible debtholders to convert to stock at 80%, or “20% off” the share price paid in the subsequent funding round as a reward for the increased risk of their investment.

https://www.ipohub.org/valuation-caps-and-conversion-discounts/

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Convertible note template | Eqvista

(2 days ago) Conversion discount – Investing in convertible notes in the early stages of a company is quite a risky proposition for an investor. As compensation, this discount feature offers a special valuation discount for the investors in the subsequent valuation round. This is not offered to later-stage investors.

https://eqvista.com/convertible-note/convertible-note-template/

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Convertible Note - Overview, Main Advantage, Terms

(2 days ago) Jan 20, 2020 · A convertible note refers to a short-term debt instrument that allows an investor to convert debt to an equity stake in a company. Convertible notes are typically issued by newly opened companies (startups) and are frequently used in the seed round of financing. Investors use a note’s discount rate, interest rate, valuation cap, and maturity ...

https://corporatefinanceinstitute.com/resources/knowledge/credit/convertible-note/

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Convertible Debt – The Discount | Foundry Group

(6 days ago) Sep 15, 2011 · For example, if you have a $100,000 convertible note, it’ll purchase 125,000 shares ($100,000 / $0.80) whereas the new equity investor will get 100,000 shares for his investment of $100,000 ($100,000 / $1.00). The range of discounts we typically see is 10-30% with 20% being the most common.

https://www.foundrygroup.com/blog/atvc/convertible-debt-the-discount/

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Entry for Conversion of Convertible Notes | Proformative

(4 days ago) May 27, 2018 · Jon, I follow your earlier response but am uncertain of the last portion of the entry at conversion. I have a Convertible Note with the following details: Principal $10,000 Term No Term Discount 20% Rate 10% Compounding Annually Cap $10MM pre-money valuation--no impact as the valuation is well below $. Actual Term 2 Years, 7 Mos, 6 Days

https://www.proformative.com/questions/entry-conversion-convertible-notes/

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New convertible debt accounting guidance: PwC

(6 days ago) Separating convertible debt into two units of account under the cash conversion accounting model results in the debt being recorded at a discount to the principal amount, and that discount is recognized as incremental non-cash interest expense over the expected life of …

https://www.pwc.com/us/en/services/trust-solutions/accounting-advisory/new-convertible-debt-accounting-guidance.html

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Converting notes: pre-money vs post-money - Gust Equity ...

(6 days ago) Apr 25, 2016 · Seed Convertible - A Convertible Note series with $1,000,000 invested with a 20% discount This company is doing a Series A of $1,000,000 at a pre-money valuation of $4,000,000. Pre-money conversion First, let's look at the results if we go for a pre-money note conversion. We have one $1,000,000 note at a 20% discount.

https://docs.equity.gust.com/article/116-converting-notes-pre-money-vs-post-money

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Structuring Convertible Note Financing: Discount Rates ...

(3 days ago) Convertible note financing is the most common form of seed-round funding for startup companies, partly because it does not force the issuer and investors to determine the company's value at the time of the transaction.

https://www.straffordpub.com/products/structuring-convertible-note-financing-discount-rates-valuation-caps-conversion-triggers-2022-02-01

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Investor Education Series: Convertible Note Conversion ...

(4 days ago) May 04, 2021 · Convertible notes tend to cause a bit of confusion, even for experienced investors, so we thought it’d be helpful to cover reasons a fundraising company would offer a note, explain the different components of a note, and break down the mechanics of conversion, as there are a few possible methods that can drastically impact noteholders ...

https://www.seedinvest.com/blog/angel-investing/convertible-note-conversion-mechanics

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Seed Convertible Note Discounts - Morse

(6 days ago) Mar 19, 2012 · A convertible note round of $1,000,000, which would be a large round by most standards, when converted at a 20% discount would only result in a $250,000 liquidation preference premium in the aggregate upon exit. For starry eyed founders and investors with hopes for lofty exit values, this is not a large sum.

https://www.morse.law/news/seed-convertible-note-discounts/

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Convertible Notes and SAFE Terms and Definitions

(6 days ago) Oct 26, 2021 · Conversion Discount: The discount applied to the price per share when the note holder will purchase shares in the next fundraising round. For example, imagine an investor who is owed $10,000 for their convertible investment with a 20% conversion discount. The new equity round is set at a $2.00 price per share.

https://support.carta.com/s/article/convertible-terms-and-definitions

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The Pros and Cons of Convertible Notes | Toptal

(1 days ago) Jul 10, 2018 · Conversion Discount: When the convertible notes convert to equity in the event of a qualified financing, not only do the note holders get credit for both their original principal plus accrued interest to determine how many shares they receive, they also generally get a discount to the price per share of the new equity. For example, if the ...

https://www.toptal.com/finance/startup-funding-consultants/convertible-note

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Calculating Share Price With Outstanding Convertible Notes

(4 days ago) The hardest part about calculating the price per share in a Series A financing of a company that has convertible notes or Safes converting at a discount is that it effectively re-opens the discussion about the valuation of the company. Each party may have thought they had an agreement and now one (or both) needs to compromise to get the deal done.

https://www.cooleygo.com/calculating-share-price-outstanding-convertible-notes-or-safes/

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Convertible Note Term Sheet - Explained - California ...

(6 days ago) The convertible note Discount Rate is a key term that determines how many shares of capital stock will result from the conversion of the outstanding convertible debt. The convertible debt investors usually are taking on more investment risk at the seed investment stage relative to the later equity investors. Accordingly, their debt will convert ...

https://calcounselgroup.com/convertible-note-term-sheet-5-key-financing-terms-explained/

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Convertible Note Discount Price Caps - Startup Lawyer

(1 days ago) Jun 22, 2010 · Convertible Note Discount As a sweetener to the angel investor (i.e., compensate the angel for the early risk), the convertible promissory note will have an automatic conversion discount feature by which the angel investor will exchange the convertible debt for shares of the Series A Preferred Stock at a discount to the price per share paid by ...

https://startuplawyer.com/seed-rounds/the-convertible-note-discount-price-cap

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Understanding Convertible Debt Valuation | Valuation Research

(5 days ago) Jul 21, 2016 · The conversion ratio is estimated as the number of shares the convertible note is convertible into. The formula below demonstrates the relationship between the conversion ratio and the conversion price: CR = N/CP where, CR is the conversion ratio. N is the notional or principal amount. CP is the conversion price.

https://www.valuationresearch.com/pure-perspectives/understanding-convertible-debt-valuation/

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What is a Convertible Note?

(5 days ago) Jan 10, 2022 · Conversion Discount Rate This is the discount rate the investor will receive on shares when the note matures. This compensates the investors for their risk in investing so early in the process....

https://www.linkedin.com/pulse/what-convertible-note-investoge

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Convertible Note and SAFE Note Calculator - TEN Capital ...

(6 days ago) If the price per share is $4 and the discount is 15%, then the note holder receives their share at a price of ($4 * (1-.15)) = $3.40. The cap rate sets a maximum limit at which the convertible note can convert to equity. For example, if the cap rate is $3M and the next round of financing comes in at $5M, and the share price is $4.

https://tencapital.group/convertible-note-and-safe-note-calculator/

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Understanding the Key Features of a Convertible Note ...

(2 days ago) Dec 02, 2020 · Valuation Caps and Discounts. The convertible note investor is compensated for the risk of investing before the equity financing in the form of a conversion discount. This can be structured simply as a discount, a valuation cap, or both. Most first-money note offerings will give the investor both a discount in the 15-25% range and a discount ...

https://curriermartin.com/2020/12/02/understanding-the-key-features-of-a-convertible-note-offering/

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What does a 'discount' mean in a convertible note? - Quora

(5 days ago) In convertible notes, the investment is given right away to the startup but conversion to equity happens during the next round of financing or as described in the terms of the security agreement. To compensate for the added risk in early stage startups convertible notes have features like discount rate and valuation cap.

https://www.quora.com/What-does-a-discount-mean-in-a-convertible-note

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Convertible Note Seed Financings: Econ 101 for Founders ...

(2 days ago) Apr 21, 2012 · What Is a Conversion Discount? As discussed in part 1, in the context of a seed financing, a convertible note is a loan that typically automatically converts into shares of preferred stock upon the...

https://techcrunch.com/2012/04/21/convertible-note-seed-financings-econ-101/

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Convertible note caps - VentureSouth

(7 days ago) To recap the primer, the valuation cap establishes the maximum conversion price noteholders would pay if the note converts to equity. The note will convert at the lower of the price based on the conversion discount or based on the valuation cap. We provide an illustration here of a note with a 20% discount and a $5M cap.

https://venturesouth.vc/convertible-note-caps/

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Convertible Note Interest Rate: Everything You Need to Know

(2 days ago) Oct 28, 2020 · When convertible notes convert into equity, it is with a conversion discount or a price cap. Convertible Note Terms. Several key points to keep in mind when evaluating a convertible note include the: Discount rate: This rate represents the valuation discount received during the subsequent financing round. The investors have the right to convert ...

https://www.upcounsel.com/convertible-note-interest-rate

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Conversion Discounts vs. Warrant Coverage in Convertible ...

(2 days ago) Nov 21, 2013 · The conversion discount is better for you and is market. If you are the company raising funds in a convertible note financing, consider using warrants in lieu of a conversion discount (whatever you do don’t do both). Warrant coverage is better for you, but you may have an uphill battle negotiating warrant coverage in lieu of a conversion ...

https://www.alleywatch.com/2013/11/conversion-discounts-vs-warrant-coverage-in-convertible-note-financings/

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Convertible Note Calculator | Plan Projections

(5 days ago) Jul 16, 2019 · Enter the Convertible Note Details. Enter the amount, discount, and cap for the convertible note. The amount of the convertible note should include any accrued interest accumulated on the loan note since it was issued. The calculator works out the conversion values based on both the discount and on the cap, and uses the maximum of these two ...

https://www.planprojections.com/calculators/convertible-note-calculator/

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Understanding Startup Investments | FundersClub

(3 days ago) Discounts range from 0% to as high as 35% with 20% being common. EXAMPLE. Basically, a discount on a convertible note is like a coupon starting that early investors can later purchase equity in the startup on sale. Imagine you invested $250,000 in Instagram’s Seed round via a convertible note with a 20% discount.

https://fundersclub.com/learn/guides/understanding-startup-investments/understanding-convertible-notes/

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Convertible Notes Explained | Gusto

(6 days ago) Aug 26, 2021 · Most convertible notes also come with a valuation cap or conversion discount. A valuation cap is the maximum valuation at which an investor’s money can turn into equity. The cap—which dictates the price per share of stock—essentially protects early investors from having to pay a higher price per share compared to investors who come in later.

https://gusto.com/blog/business-finance/convertible-notes

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SAFE and Convertible Note Calculator - Carta

(4 days ago) Jun 02, 2021 · Convertible note (assume pre-money approach): The convertible note model assumes the pre-money approach; we recommend you assume some amount of interest will accrue and be converted with the principal, based on applicable interest rate and anticipated time elapsed prior to conversion.

https://support.carta.com/s/article/safe-note-calculator

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Convertible Note: 3 Reasons Why You Should Consider Them

(5 days ago) The convertible note will include a due date when the note matures and the balance is due, along with any interest that the loan accrued during that time. Rather than repaying the note like a normal loan, the investor is paid with equity in the business. ... The conversion discount essentially allows the investor to buy more shares with their ...

https://www.contractscounsel.com/t/us/convertible-note

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Invest in Startups | Equity Crowdfunding | MicroVentures

(5 days ago) Jul 08, 2021 · Here, we’ll take a look at what purpose valuation caps and conversion discounts have for investors. How convertible notes work. A convertible note is a loan that converts to equity at a pre-determined maturity date or company milestone. This “company milestone” is often a financing event noted within the note’s investment documentation.

https://microventures.com/valuation-caps-conversion-discounts

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KISS or Keep It Simple Security Convertible Note | Eqvista

(6 days ago) Mar 26, 2020 · The percentage-ownership method causes all of the dilutions that result from the shares issued upon conversion of the KISS convertible note to be borne by the founders. And even though the ownership of the Series A’s investors stays fixed at 20% and the post-money valuation also at $10 million , the pre-money valuation implied by this method ...

https://eqvista.com/kiss-or-keep-it-simple-security-convertible-note-calculator/

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Terms of Convertible Debt — Angel Investing: Start to Finish

(4 days ago) Conversion discounts are very common in convertible notes. It is a term that you should always look for when you are reviewing a convertible note offering. However, not all convertible notes provide discounts. For example, at one time companies graduating from Y Combinator were issuing notes with no cap, no discount, and no interest rate.

https://www.holloway.com/g/angel-investing/sections/terms-of-convertible-debt

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Fundraising for your company: convertibles and SAFEs vs ...

(3 days ago) Apr 22, 2020 · Convertible notes often include a valuation cap and/or conversion discount. A valuation cap sets a maximum valuation—for purposes of determining the price per share—at which an investor’s money converts into equity, even if investors in the priced round agree to and pay a different price per share based on a higher valuation.

https://carta.com/blog/convertibles-safes-priced-rounds/

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Convertible Promissory Note Financing: Part II - Common ...

(7 days ago) Convertible Promissory Note Financing: Part II – Common Terms. by Shamim Mohandessi. In our first installment, we reviewed some of the use cases for issuing convertible notes and the two common formats of convertible notes.In this second installment, we review the six central terms frequently negotiated in the issuance of convertible notes between issuers and holders.

https://hansantos.com/convertible-note-part-ii-common-terms/

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