Convertible note cap table math in Delaware

Modeling how convertible notes hit your Delaware cap table is mostly algebra, but the details matter: discounts vs. caps, pre‑ vs. post‑money, and how Delaware law treats authorized vs. issued shares. This guide walks through how to think about the math and how to run it in DocketMath’s convertible note cap table calculator for a Delaware corporation.

Quick takeaways

• Convertible notes convert into equity at the next priced round, usually at:

  • a discount to the round price, and/or
  • a valuation cap that effectively sets a lower share price.
• In Delaware, the cap table math is about issued and outstanding shares; the DGCL also cares about authorized shares, which can limit what you can actually issue.
• The key modeling questions are:

  • Does the note convert on a pre‑money or post‑money basis?
  • Does it convert before or after the option pool refresh?
  • Are interest and fees capitalized into the conversion amount?
• DocketMath lets you:

  • Enter Delaware‑specific share classes (e.g., common vs. Series A preferred).
  • Toggle note terms and see how each note affects ownership percentages and post‑money valuation.
• None of this replaces legal advice—Delaware corporate law and your specific note language control the outcome.

Inputs you need

To model convertible note math for a Delaware corporation, you’ll want everything in one place before opening DocketMath.

Use this intake checklist as your baseline for Convertible Note Cap Table work in Delaware.

• note principal balance
• valuation cap
• discount rate
• pre-money valuation
• round size and option pool
• conversion timing

If any of these inputs are uncertain, document the assumption before you run the tool.

1. Company and cap table baseline

From your charter, stock ledger, or cap table:

• Jurisdiction

  • State of incorporation: Delaware (US‑DE)
• Authorized shares (Delaware DGCL §102(a)(4))

  • Total authorized shares
  • Authorized per class/series (e.g., Common, Series A Preferred)
• Issued and outstanding shares (pre‑financing)

  • Common stock outstanding
  • Preferred stock outstanding (if any earlier round)
  • Options outstanding
  • Warrants or other equity‑like instruments
  • Reserved but unissued option pool (if you’re modeling a refresh)

2. Financing round terms (the priced equity round)

From your term sheet or draft financing docs:

• Valuation and price

  • Pre‑money or post‑money valuation
  • Target share price (or enough info to derive it)
  • Total new money to be raised in the round
• Round structure

  • Share class (e.g., Series Seed Preferred, Series A Preferred)
  • Target ownership for the new investors (if specified as a %)
• Option pool

  • Whether there is an option pool increase required
  • Target post‑financing option pool % (e.g., 10–15%)
  • Whether the pool expansion is pre‑money (common in NVCA‑style docs)

3. Convertible note terms

For each note (or SAFE / convertible instrument) you want to model:

• Principal amount
• Accrued interest (or interest rate and accrual date so you can estimate)
• Discount rate (e.g., 20%)
• Valuation cap (if any)
• Most‑favored nation (MFN) provisions, if relevant
• Conversion basis:

  • Pre‑money or post‑money?
  • Is the note included in the pre‑money for conversion purposes?
• Conversion triggers:

  • Qualified financing threshold
  • Treatment in non‑qualified or change‑of‑control scenarios (for alternate modeling)

4. Delaware‑specific considerations

You don’t need to enter statutes into DocketMath, but you should know:

• Whether your charter amendment for the new round:

  • Increases authorized shares enough to cover note conversion.
  • Creates the new preferred series the notes will convert into.
• Whether any notes have Delaware‑specific covenants that affect:

  • Timing of conversion (e.g., only upon filing of amended charter).
  • Consent thresholds for noteholders (DGCL §228 concerns for written consents can be relevant to transaction timing, though not directly to the math).

How the calculation works

This section focuses on the math logic you’re modeling in DocketMath, not the legal drafting.

DocketMath applies the Delaware rule set to the inputs, then runs the calculation in ordered steps. It validates the trigger date, applies rate or cap logic, and produces a breakdown you can audit. If you change any one variable, the tool recalculates the downstream outputs immediately.

1. Determine the base share price

Start with the priced round:

1. Choose pre‑money or post‑money mode in the calculator.
2. If you have:

   • Pre‑money valuation and existing fully diluted shares, then: [ \text{Share price} = \frac{\text{Pre‑money valuation}}{\text{Fully diluted shares pre‑financing}} ]
   • Post‑money valuation and new money, then: [ \text{Pre‑money} = \text{Post‑money} - \text{New money} ] and then compute share price as above.

DocketMath’s convertible note cap table tool will:

• Let you specify what counts as fully diluted (e.g., including or excluding unallocated option pool, warrants, etc.).
• Show the implied share price and let you adjust assumptions.

2. Compute each note’s conversion price

For each note, you’ll generally compare:

• Discount price: [ \text{Discount price} = \text{Round share price} \times (1 - \text{Discount %}) ]
• Cap price: [ \text{Cap price} = \frac{\text{Valuation cap}}{\text{Fully diluted capitalization used for cap}} ]

Then:

• The conversion price = the lower of the discount price and cap price, unless the note explicitly says otherwise.

You also:

• Add accrued interest (and sometimes certain fees) to principal: [ \text{Conversion amount} = \text{Principal} + \text{Accrued interest (if converting)} ]
• Compute shares issued on conversion: [ \text{Note shares} = \frac{\text{Conversion amount}}{\text{Conversion price}} ]

In DocketMath, you:

1. Enter principal, interest, discount, and cap for each note.
2. Choose what counts in “fully diluted capitalization” for the cap test.
3. The tool calculates discount price, cap price, and resulting shares.

3. Order of operations: option pool and notes

The order in which you apply different steps affects the math.

Typical NVCA‑style sequence (but always check your documents):

1. Set target post‑money option pool % (e.g., 10–15%).
2. Solve for new option pool shares such that, after:

   • pool increase,
   • note conversion, and
   • new money shares, the pool is the target %.
3. Convert notes using the agreed capitalization definitions.
4. Issue new preferred shares to cash investors.

Mathematically, this is an iterative problem because:

• The denominator (total shares outstanding) depends on the notes and pool, and
• The numerator for each component (pool, notes, new money) depends on the share price and conversion price.

DocketMath handles that iteration for you:

• You specify:

  • Whether the option pool top‑up is pre‑money and whether notes are included in the pre‑money cap.
  • Whether notes convert into the new preferred series or another class.
• The tool then:

  • Solves for the pool size that hits the target %.
  • Calculates note shares.
  • Calculates new money shares.
  • Outputs the final cap table.

4. Delaware share constraints

From a modeling perspective, Delaware adds one key constraint:

• You cannot issue more shares than are authorized in your charter.

In practice:

• You (and your counsel) amend the Delaware charter before or at the financing closing to:

  • Increase authorized shares sufficiently.
  • Create the new preferred series.

In DocketMath, you can:

• Enter your authorized share counts per class.
• Compare the total post‑financing shares (common, preferred, options, converted notes) to authorized.

If the calculator shows:

• Total post‑closing shares > authorized for any class, that’s a red flag that:

  • Your charter amendment or share class allocation needs to be adjusted.

5. Reading the outputs

Once all inputs are in, DocketMath’s convertible note cap table calculator will show, for a Delaware corporation:

• Post‑financing cap table

  • Shares and % ownership by:

    • Founders/common
    • Existing preferred (if any)
    • Each note (as a holder of the new preferred)
    • New money investors
    • Option pool (allocated and unallocated)
• Valuation metrics

  • Implied share price
  • Pre‑ and post‑money valuations
  • Effective conversion price for each note
• Jurisdiction context

  • A reminder that the entity is Delaware (US‑DE), so:

    • You’re working under the Delaware General Corporation Law for corporate actions.
    • The cap table is being modeled with Delaware‑style

Common pitfalls

• confusing pre-money and post-money caps
• forgetting to apply the discount versus cap test
• ignoring existing option pool dilution
• mixing share class terms

When rules change, rerun the calculation with updated inputs and store the revision in the matter record.

Sources and references

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

• Del. Code Ann. tit. 8, § 151

If an assumption is uncertain, document it alongside the calculation so the result can be re-run later.

Next steps

Use the Convertible Note Cap Table tool to produce a first pass, then share the output with the team for review. You can start directly in DocketMath: Open the calculator.

If an assumption is uncertain, document it alongside the calculation so the result can be re-run later.

Related reading

• How to calculate deadlines in Delaware
• Statute of limitations in Singapore: how to estimate the deadline
• Inputs you need for convertible note cap table math in United States (Federal)