Assume an initial investor is going to invest $325,000 into your company using convertible notes.

Assume there is a cap in the terms of the note that says in the event that the company raises money again in the future, regardless of the valuation, the early-stage investor will convert all notes assuming the pre-money value obtained in the financing is $3 Million.

Assume there is a future funding round years later, and the pre-money valuation at that point is $9 Million, with the company raising money through selling equity at $1 / share.

At the point of the future funding round being realized, what will the early-stage investor's notes convert to?

a.

The early-stage investor's notes convert at a price of $0.50 per share. The early stage investor receives 650,000 shares worth $325,000. This is a ~2X return.

b.

The early-stage investor's notes convert at a price of $0.33 per share. The early stage investor receives 984,848 shares worth $984,848. This is a ~3X return.

c.

None of these answers are correct.

d.

The early-stage investor's notes convert at a price of $1 per share. The early stage investor receives 325,000 shares worth $325,000. This is a ~3X return.

e.

The early-stage investor's notes convert at a price of $3 per share. The early stage investor receives 984,848 shares worth $975,000. This is a ~3X return.