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Q

Numerical example: $25k convertible note with 10% warrant coverage

A

Let’s do a numerical example ignoring any accrued interest, and assuming no valuation cap or discount in the convertible note:

  1. You invest $25k in a startup’s seed round using a convertible note with 10% warrant coverage for shares of the next round at the price of the next round

  2. At the Series A, the startup raises money from a venture capital firm that pays $5.00 per share of Series A Preferred Stock

  3. Your $25k loan would convert into shares of Series A Preferred Stock at a price of $5.00 per share = 5,000 shares

  4. Additionally, you would have the option to purchases shares from 10% warrant coverage or an additional 500 shares (($25,000 * 10%)/$5/share).

  5. If purchase option is fully exercised, you would have a total of 5,500 shares in the new round, or 10% more than you would have otherwise had from the convertible note.

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