Fundraising
Convertible notes and cap tables
A convertible note is debt that converts into equity, normally at the next qualifying round. On a cap table it needs five attributes tracked from day one: principal, interest rate, valuation cap, discount and maturity date. Interest accrues, so the conversion amount grows with time — which is why notes recorded as a flat cash figure produce the wrong share count.
Prepared by Perseids · Published · Updated
What converts
Usually principal plus accrued interest. The conversion price is the lower of the cap-implied price and the discounted round price. The resulting share count is the converting amount divided by that price.
Worked example
A 250,000 note at 6% simple interest, signed 18 months before the round, has accrued 22,500 in interest — 272,500 converts, not 250,000. With a 20% discount to a 2.00 round price, the conversion price is 1.60 and the note produces roughly 170,300 shares rather than the 156,250 a flat model would suggest.
Notes vs SAFEs on a cap table
| Convertible note | SAFE | |
|---|---|---|
| Legal form | Debt | Contractual right to future equity |
| Interest | Usually accrues | None |
| Maturity | Yes — repayment or renegotiation | None |
| Cap table treatment | Conditional share count including interest | Conditional share count on cap/discount |
Legal form
- Convertible note
- Debt
- SAFE
- Contractual right to future equity
Interest
- Convertible note
- Usually accrues
- SAFE
- None
Maturity
- Convertible note
- Yes — repayment or renegotiation
- SAFE
- None
Cap table treatment
- Convertible note
- Conditional share count including interest
- SAFE
- Conditional share count on cap/discount
Maturity is a cap table risk
A note that reaches maturity without a qualifying round becomes a repayment obligation or a negotiation. Either outcome changes ownership or cash. Track maturity dates on the cap table, not only in the loan file.
Prepared by Perseids for general information. It is not legal, tax or investment advice — confirm your specific situation with your advisers.
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