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Convertible Note Seed Financings: Econ 101 for Founders

Scott Edward Walker

APRIL 22, 2012

This part 2 will address the economics of a convertible note seed financing and the three key economic terms: (i) the conversion discount, (ii) the conversion valuation cap and (iii) the interest rate. What is a Conversion Valuation Cap? and (iii) what are the advantages of issuing convertible notes?

Pre-Money Valuation 72
Pre-Money Valuation Finance Liquidation Preference Founder 72
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Is it Time for You to Earn or to Learn?

Both Sides of the Table

NOVEMBER 4, 2009

Let’s assume that the company raised it at a normal VC valuation, which means it gave up 33% of the company and thus $5 million / 33% = $15 million post-money valuation. In California that averages around 42.5% BTW, this ignores liquidation preferences which actually mean you’ll earn less.

Stock Options 418
Stock Options Stock Liquidation Preference Option Pool 418
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