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  1.  
  2. TAKING THE MONEY
  3. Convertible Notes
  4. Discount or cap? A spreadsheet that shows what happens when a note converts.
« Victoria Silchenko: Equity Crowdfunding: Next Generation of Angel Investors Is Not Sorry to Disrupt
Investors Weigh In With Convertible Note Caveats for Start-Ups – Venture Capital Dispatch – WSJ »

Discount or cap? A spreadsheet that shows what happens when a note converts.

7 May 2013   | Convertible Notes

Tags: discount · note cap · spreadsheet

LINK TO ORIGINAL ARTICLE:
  • http://rajibedi.tumblr.com/post/27034332353/discount-or-cap-a-spreadsheet-that-shows-what-happens

Venture math can be tough. Terms like convertible note, discount and cap can complicate a seemingly easy process. A convertible note is a debt instrument typically used when a company first begins to raise capital. The valuation of the company is determined at a later date, after a Series A investment. This is when a note converts to equity at the previously agreed upon terms. A discount and cap are typically included in those terms. A discount gives a note holder’s small investment a little bit more purchasing power. But with a discount, there is no limit to the valuation of the company. That’s where the cap comes into play. A cap limits the valuation of the company to a pre-determined price. In other words, it protects early investors (note holders) from being diluted to oblivion. Owning 0.0004% of a company sucks for someone who took most of the risk, and a cap prevents that from happening.

While often spoken in the same sentence, a cap and discount are never used at the same time. They are mutually

>>> READ MORE at:
  • http://rajibedi.tumblr.com/post/27034332353/discount-or-cap-a-spreadsheet-that-shows-what-happens
« Victoria Silchenko: Equity Crowdfunding: Next Generation of Angel Investors Is Not Sorry to Disrupt
Investors Weigh In With Convertible Note Caveats for Start-Ups – Venture Capital Dispatch – WSJ »

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