Convertible Note Calculator

Calculating the convertible notes into share ownership of a company can be very confusing. That is where Eqvista can help with our convertible note calculator to see how much ownership your convertible notes convert to..

Once you have entered in your company’s information including the company valuation, new investment, convertible notes, and equity grants, you can view how much company ownership each equity type is based on your company valuation.

The graph would break down the total share ownership each one is and how your convertible notes are calculated into your company’s cap table.

Convertible Notes

A convertible note is a kind of convertible security, which are a group of financial instruments that can turn into stock in the future. The amount of stock that the investor gets is determined by the calculations in a convertible note calculator. There are typically three kinds of convertible securities including standard convertible notes, KISS (Keep it Simple Security) and SAFE (Simple Agreement for Future Equity). These convertible notes act as an IOU, where you pay future equity to the investor of the convertible note instead of cash.

What are the advantages of convertible notes?

Let us say you just started your idea and are turning it into a company. But you need investment and contact an investor to help. However the risk is too high for them the company wouldn’t be able to issue stock to the investor without any tangible value.

The only way you can get capital for your company is by offering them a promise of shares for the amount they provide now. This promise is made through convertible notes that have special terms like a maturity date, interest rate, and the valuation cap whose final value is determined using a convertible note cap calculator.

In short, it benefits companies by allowing them to get capital without valuing their shares in the early stages of the startup.

Important Terms to Know

Convertible notes have some special terms usually added based on how valuable they might turn out to be for the investor. Just know that adding more terms to the convertible note can cause more dilution to your ownership in the company, so add them wisely.

These important terms are used by a convertible note calculator to determine the final stock ownership, which include:

  • Maturity Date: Date when the convertible note matures, ie. when the investor can demand back their money if there hasn’t been a funding round in the company and the note has not been converted.
  • Pre-money Valuation: Amount determined before the next equity round takes place and with this, the amount of equity the company gets in the equity round is determined, which is the conversion trigger. The conversion trigger is what triggers the conversion of the convertible security.
  • Principal: This is the amount that the investor paid for the note.
  • Discount Rate: It is a discount on the price of the shares offered to the investor when it converts.
  • Valuation Cap: This is the limit placed on the value of the company so that the note converts at no more than the valuation cap agreed on.
  • Interest Rate: This is an interest rate added to the convertible note. The interest also converts into shares when using a convertible note interest calculator.

Types of convertible notes

There are three main kinds of convertible debts that companies use, including a standard convertible note, KISS and SAFE. Each of them is different and are used under different circumstances.

  • Standard Note: This is a simple convertible note and is considered to be the most friendly one for investors. Convertible notes normally have a discount rate, interest rate, valuation cap, maturity date, and a QFE (Qualified Financing Event). As there is a lot of cash available for investment and better terms in SAFEs and KISSes, convertible notes are becoming less popular.
  • SAFE: Simple Agreement for Future Equity, or SAFE, was developed by Y Combinator as a way for companies to get funding easily. They are considered to be very company-friendly due to the SAFE terms. SAFEs do not have a maturity date, do not accrue interest, and they might not have a valuation cap. The only term compulsory is the QFE. This convertible note has become popular due to its ease of use.
  • KISS: Keep It Simple Security, or KISS, is similar to a SAFE. This convertible note was created by 500 Startups as an alternative to the SAFE and standard convertible note. The KISS might or might not have a maturity date or interest rate. But it does have a discount rate, a valuation cap, and a QFE of one million dollars. KISS notes also include information rights, where the investor has the right to get the company financials, making them more investor-friendly.

Other Financial Modeling Tools

There are two other kinds of tools used along with the convertible note calculator to understand how convertible notes affect a company’s cap table. Both have been explained below:

Round Modeling

Round modeling is a financial tool that assists in determining the dilution of the company’s cap table when convertible notes are issued or with any new investments made in the company. This information helps the company in making important financial decisions about taking up new investments or giving out convertible notes. The tool would also act as a convertible note calculator and get the final results of how the cap table would be when all the instruments have been converted.

dilution of the company’s cap table using the Round Modeling tool

View the dilution of the company’s cap table using the Round Modeling tool

The main features of the Round Modelling Tool include:

  • Pre-money & post-money convertible basis
  • Convertible note interest options for convertible notes
  • Convertible rate options for preferred shares
  • A basic and advanced version of a new investment
  • Several inputs for pre-money valuation, post-money valuation, date of
  • investment, and investment round
  • Instantly reactivity for of input data
  • Graph chart & key figures for the new investment

Waterfall Analysis

The waterfall analysis tool is used to assist the company in creating financial models of the total amount each shareholder would get once the company exits. The model undergoes complex calculations for each type of shareholder. It displays all the possible exit scenarios in a company.

financial model to calculate payouts for each shareholder using Waterfall Analysis

Create a financial model to calculate payouts for each shareholder using Waterfall Analysis

The main features of the Waterfall Analysis Tool include:

  • Cap Table comparison of payout values
  • Waterfall chart for preference rounds
  • Preference liquidation breakdown of preferred investors
  • Advanced calculations for preference rounds
  • Converted liability option for noteholders
  • Cash Dividend option for preference shareholders
  • Several inputs for exit date, exit value, and possible transactions fees
  • Instantly reactivity for efficient analysis

Want to try our financial modeling tools?

Benefit by using our financial tools and the convertible note calculator to make better decisions for your company. Create your cap table, add your shareholders, stock grants, options, warrants and convertible notes and start managing your company’s equity.

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