You are an early-stage investor who invested $1,000,000 into a seed stage startup using a convertible note. The convertible note is for 12 months, with 10% annual simple interest, a 20% discount (applies to accrued interest as well), and a $15M pre-money valuation cap. Assume there are 1,000,000 shares outstanding prior to the Series A investment.

Part A

The startup is now raising a priced Series A round of funding of $10M and the potential investors are talking about a post-money valuation range of $25M - $35M.

At what post-money valuation are you indifferent between using the discounted share price versus the pre-money cap derived price to convert your investment into equity?

Below that post-money value, which one would you use? Above that post-money value, which one would you use?

Additionally, at the indifference valuation, show the:

• Share price for the Series A investors at that valuation
• Share price for the Seed investor (you) at that valuation
• Number of shares purchased by you and the Series A investor
• Percent ownership by Series A investor, you, and the other prior outstanding shares (presumably for the founders and early team members).

Part B

Instead of a Series A funding round, the company agrees to be acquired before your convertible note has converted into shares of the company at a qualified financing. The good news is you have a Liquidation Preference term of 2x payback (including accrued interest) or Participating, at your discretion. Again, assume there are 1,000,000 shares outstanding prior to the transaction.

At what acquisition price, would you switch from the 2x payback to the Participating option?

Additionally, show:

• Your share price at that valuation
• Share price of the other outstanding shares
• Number of shares purchased by you
• Percent ownership of the company by you