Convertible Note & Cap Table Math Guide for Colorado

What this calculator does

Run this scenario in DocketMath using the Convertible Note Cap Table calculator.

DocketMath’s Convertible Note & Cap Table Math Guide for Colorado is built around one practical goal: help you model how a convertible note can convert into equity and how that conversion affects a company’s cap table.

In plain terms, the calculator helps you estimate:

• Number of shares received by noteholders after conversion
• Pre-money vs. post-money ownership changes for founders, employees, and existing shareholders
• Effects of common note terms, including:

  • Conversion price and/or discount
  • Valuation cap
  • Interest (if modeled as converting at conversion)
  • Multiple note tranches (if you enter more than one note or investor line item)

Because Colorado businesses can issue securities under Colorado’s corporate and securities frameworks, convertible notes in practice often reflect a mix of deal mechanics, price protection, and documentation/compliance choices that affect things like who can buy and how the conversion is described.

This guide focuses on the math model—not deal drafting or compliance strategy.

If you want to run the model, use the tool here: /tools/convertible-note-cap-table.

When to use it

Use this calculator when you’re trying to answer questions like these for a Colorado startup or issuer:

You’re forecasting dilution before a priced round

If you expect a qualified financing (a priced equity round), you can model how much a note converts at:

• a capped valuation,
• a discount to the next round’s price,
• and with interest included (depending on the note terms).

You need to sanity-check “ownership outcomes”

Convertible notes can create confusion because conversion often depends on the next round’s valuation and the note’s cap/discount formula.

Run the model to see:

• who gets diluted,
• how much the noteholders own post-conversion, and
• whether the resulting cap table matches what you expect.

You’re modeling multiple notes with different terms

When different investors have different caps, discounts, or interest rates, manual spreadsheets become error-prone. DocketMath’s input-driven approach helps you track:

• per-note conversion shares,
• aggregated dilution, and
• how conversion interacts with existing equity.

You’re preparing internal documentation for financing discussions

Even without covering filing details, founders and operators often need an internal version of:

• “what happens if we raise at $X pre-money,” and
• “how much of the company goes to noteholders under these terms.”

That’s exactly what scenario modeling is for.

Step-by-step example

Below is a concrete example of how to use DocketMath’s convertible-note-cap-table workflow. The numbers are hypothetical, chosen to show how caps and discounts can change conversion outcomes.

Example facts

Assume a Colorado startup has:

• **Existing equity (pre-note conversion)

  • Founders’ common: 10,000,000 shares
  • Option pool (unissued or reserved): 1,000,000 shares
  • Total currently outstanding common-equivalent shares (simplified): 11,000,000 shares

• Convertible note

  • Principal: $500,000
  • Annual interest: 8%
  • Time from issuance to conversion: 12 months
  • Valuation cap: $5,000,000
  • Discount: 20%
  • Modeled conversion includes interest in the conversion amount

• Next priced round

  • Pre-money: $8,000,000
  • Round investment amount: $2,000,000 (implied post-money = $10,000,000)
  • Assume the calculator uses your next-round inputs to determine conversion share outcomes consistently

Because conversion math depends on how you define the pricing inputs (for example, what the next round’s implied per-share value is) and what share count assumptions you use, the calculator uses your inputs to compute the conversion outcome consistently. The important part for you is the levers: cap vs. discount vs. next-round valuation.

Step 1: Enter the equity baseline

In DocketMath:

• Add your existing share count (common + relevant reserved pool, depending on how you want the cap table displayed).
• Choose a cap table basis consistent with your internal reporting:

  • If you track only currently outstanding shares, exclude unissued pool shares.
  • If you track fully diluted (common + pool), include the pool.

For this example, we’ll use 11,000,000 shares as the baseline.

Step 2: Enter the note principal and interest

Set:

• Principal = $500,000
• Interest = 8%
• Time to conversion = 12 months
• Include interest in conversion amount = Yes (if that option exists in your tool workflow)

Compute conversion amount:

• Interest = $500,000 × 0.08 × 1.0 = $40,000
• Total converting amount = $540,000

Step 3: Enter valuation cap and discount

Set:

• Valuation cap = $5,000,000
• Discount = 20%

These terms affect the effective conversion price (or effective conversion valuation) used to determine how many shares the note converts into.

Step 4: Enter the priced round terms

Set:

• Pre-money = $8,000,000
• Investment amount (round size) = $2,000,000 (as applicable in the calculator)

If your tool requires an explicit number of new shares and/or a per-share price, enter those accordingly.

Step 5: Run conversion and review outputs

The calculator will compute:

• The effective conversion valuation/price based on:

  • the valuation cap (cap limits the effective valuation used for conversion), and
  • the discount (note gets a lower price than the next round price).
• Then it converts $540,000 into shares at that effective conversion price.

At a high level, caps/discounts matter because:

• If the next round valuation is higher than the cap, the cap often creates a lower effective conversion price (more shares to the noteholder).
• If the discount creates an even lower effective price, the discount can dominate.
• In many common note structures, conversion uses the more favorable outcome to the noteholder—this is why scenario testing is helpful.

DocketMath’s output should show:

• Conversion shares for the noteholder
• Post-conversion ownership percentages
• Updated cap table rows and totals

Step 6: Interpret the ownership change

After conversion, compare:

• Founders’ dilution percentage
• Total company shares post-conversion
• Noteholder ownership percentage

A practical interpretive checklist:

• Confirm the calculator’s post-conversion totals match your cap table basis and logic (especially whether the option pool is included in the denominator).
• Run sensitivity checks by changing the next round pre-money (for example, $6M → $12M) and observe how ownership swings.

Common scenarios

Convertible notes often follow repeatable patterns. Here are common scenarios and what you should expect to see in DocketMath for Colorado cap table modeling.

1) Valuation cap is active (next round is above cap)

Setup

• Cap = $X
• Next priced round pre-money = $Y
• If $Y > $X, the cap typically results in a lower effective conversion valuation than the unprotected next-round valuation.

What you’ll see

• Noteholders receive more shares than they would without a cap.
• Founders and other existing holders are diluted more.

2) Discount is active (cap not as favorable)

Setup

• Discount = 10%–25% (common ranges)
• Cap is relatively high (or effectively not binding), so discount becomes the main pricing lever.

What you’ll see

• Effective conversion price behaves like “next round price minus discount.”
• Dilution is more directly predictable relative to the next round price.

3) Both cap and discount present

In many common structures, conversion uses whichever is more favorable to the noteholder.

What you’ll see

• The calculator may effectively behave as:

  • cap-driven conversion at higher valuations, and/or
  • discount-driven conversion when it yields a lower effective price.

This is where scenario testing is especially valuable: change next round pre-money and confirm the ownership outcome changes in the direction you expect.

4) Interest modeled as converting into equity

Some notes specify interest accrual that may convert alongside principal at conversion.

What you’ll see

• Conversion amount increases from principal-only to principal + accrued interest.
• Noteholder ownership rises proportionally.
• This can create a noticeable swing for longer durations or higher rates.

5) Multiple notes with different caps/discounts

What you’ll see

• Different conversion share counts per note line item.
• Aggregate dilution as the sum of each note’s effect.
• “Who wins” depends on:

  • each note’s cap,
  • each note’s discount,
  • and how the next round valuation compares to each cap.

6) You’re comparing “what if” round sizes

Scenario modeling is a fast way to build intuition.

A practical checklist of scenario questions:

• If pre-money is $6M, who owns what?
• If pre-money is $10M, does the cap bind?
• If pre-money is $14M, is discount still relevant?

DocketMath’s scenario inputs help you test these without rewriting spreadsheets.

Tips for accuracy

To get reliable conversion shares and cap table outputs, focus on these accuracy controls.

Keep your share basis consistent

Choose whether your cap table view uses:

• Pre-money existing shares only, or
• Fully diluted including the option pool (and other reserved shares, if applicable)

Then keep that basis consistent across scenarios.

• ✅ Consistent basis reduces reconciliation errors.
• ❌ Mixed bases often create “mysterious” total share mismatches.

Watch rounding rules

Share counts sometimes require rounding (whole shares vs. fractional shares).

• If the tool rounds to whole shares, noteholder ownership might shift slightly.
• If fractional shares are allowed, totals usually align more smoothly with valuation math.

Confirm whether interest converts

Many real-world notes define interest treatment differently. In DocketMath:

• if interest is included, conversion amount increases,
• otherwise, only principal converts.

Make sure your input matches your note.

Validate with at least one “sanity check”

Before relying on the result, do a quick directional check:

• If you increase next round pre-money, does noteholder ownership typically decrease when the cap isn’t binding?
• If you tighten the valuation cap (lower cap number), does noteholder ownership increase?
• If you increase principal or interest, do noteholder shares increase?

These checks won’t replace document review, but they catch common input mix-ups quickly.

Use scenario comparisons to detect model drift

Run the same note under a few valuations (for example, $6M, $10M, $14M pre-money) and compare the resulting noteholder %.

If the curve behaves unexpectedly (for example, noteholder ownership increases as valuations increase despite cap being the controlling lever), re-check your inputs—especially the cap/discount settings and your share basis.

Sources and references

Start with the primary authority for Colorado and confirm the effective date before relying on any output. If the rule has been amended, update the inputs and rerun the calculation.

• C.R.S. § 7-90-102

Related reading

• Inputs you need for convertible note cap table math in United States (Federal) — Input checklist with sourcing guidance
• Worked example: convertible note cap table math in North Carolina — Worked example with real statute citations
• Convertible note cap table math in New Hampshire — Full how-to guide with jurisdiction-specific rules