Question
A venture has a $10,000 convertible note from a prior round and the entrepreneur has 10000 shares. A new investor will invest 20000 for 40%
A venture has a $10,000 convertible note from a prior round and the entrepreneur has 10000 shares. A new investor will invest 20000 for 40% equity interest in the venture. With no cap or discount, the entrepreneur's ownership interest would be valued at $20000, the new investor would get 10,000 shares and the early round investor's not would convert to 5000 shares. However, the note has a cap of $18000(based on the entrepreneur's ownership the pre-money) and the note has a 20% discount. It will convert based on either the cap or the discount, depending on which is better for the early investor. Under these conditions, it will be more advantageous to convert at 20% discount. Don't do detailed calculations. True ,False or Uncertain
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