An infographic to easily explain the process of conversion and equity split as consequence of funding with convertible notes. To find out more check out: https://www.equidam.com/startup-resources/ Compute your company value for free and in minutes at https://www.equidam.com/

1. How do Convertible Notes Work?
Equity
Debt
Convertible Notes
Straight equity, the investors receive shares directly in the
company
Investors receive a monthly payment and they are the first
ones paid in case of bankruptcy
Hybrid instrument in which debt is converted into Equity at a
trigger event
The Trigger Event
The trigger event triggers the conversion of
the debt into equity, meaning that the
convertible notes become shares and the
convertible note holders become
shareholders.
Types of trigger events
• Investment
• Liquidation
• Expiry date
The Players
The Founders
Other Original
shareholders
Convertible Notes
Investors
PROFESSIONAL INVESTORS
are used to convertible notes for seed
or bridge funding
VC or later
stage
investors
The
DISCOUNT
The
CAP
The discount is set to compensate
convertible note holders for the risk of
investing at an earlier stage.
The Founders
Convertib
le Notes
Investors
THE COMPANY NEEDS MONEY
TO GROW
TRIGGER EVENT
1 Valuation is set at
the trigger even
negotiations
SET
VALUATION
2 Cap and discount
are applied
APPLY
DISCOUNTS
3 Final Equity is
given to
convertible notes
holder
GIVE
EQUITY
4 Equity is given to
Trigger Event Investors
NEW
INVESTORS
Average Discount
Rate (Equidam)
32,5%
A Cap is set to lock the maximum valuation
of conversion. This protects convertible
note holders in case the valuation grows
too much.
NEW CAP TABLE IS FINALIZED
Other
Original
sharehold
ers
VC / New
Investors
CREDITS:
Credits for this infographic go to Daniel Faloppa and the whole team at www.equidam.com
What is a convertible note: https://www.equidam.com/practical-advice-pricing-convertible-note/
Average convertible note discount: https://www.equidam.com/discount-rate-for-a-convertible-note/
Legal and financial resources for convertible notes: https://www.equidam.com/