Overview
Our round modeling tool allows founders to model various scenarios in order to see how different terms might affect their cap table after a funding round.
This guide will walk you through calculations and assumptions of our round modeling tool in order to help you better understand your results.
Without convertible instruments or pool top-up
If you have no convertible notes or SAFEs to convert and are maintaining your existing equity pool then calculating price per share for your new investment is straightforward.
Post-money valuation - Pre-money valuation + total new investment
Round share price - Post-money valuation / Post-money fully diluted shares
Investor ownership - Total new investment / post-money valuation
Existing stakeholder dilution factor - Pre-money fully diluted shares / post-money fully diluted shares
In this simple case, the new investment proportionally dilutes existing stakeholders.
Impact of individual convertible terms
In our round modeling tool we assume the conversion happens in the round that is currently being modeled. At the time of issuance (and outlined when adding to the convertible instruments screen) there are 4 main terms associated with notes & safes,
Principal - This is what that the stakeholder paid for the note. For example, if the stakeholder invested $million then $1million is the principal amount.
Interest -this is the interest that is accrued on the convertible over time until it is converted into shares.
Valuation Cap - This is the max value at which notes and safes will convert into equity in the round.
Conversion Discount - The discount applied to the price per share when the note holder purchases shares in the next fundraising round.
These are used to calculate the resulting ownership of the convertible holders after their conversion. There are three common ways this calculation is done:
By valuation cap with the pre-money valuation cap type: available on both notes and pre-money SAFEs
By valuation cap with the post-money valuation cap type: available on post-money SAFEs
Discount: available on convertible notes, pre-money SAFEs, and post-money SAFEs
These calculations result in an effective convertible price, which is then used to calculate the number of convertible shares. The convertible price by valuation cap and by discount are both calculated. They are then compared to the new investors’ price per share where the lowest price is used.
With convertible notes and SAFEs
Our Round Modeling tool uses the 'Percentage Ownership Method' when convertible notes and SAFEs are being converted in the model.
In this method the percentage ownership of the company that the investor is purchasing is fixed and the other variables are calculated based on that.