Convertible Note & Cap Table Math Guide for Kentucky

What this calculator does

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

DocketMath’s Convertible Note & Cap Table Math calculator helps you model how a convertible note may turn into equity, and how that conversion changes the cap table in Kentucky (US-KY).

In plain terms, it converts your inputs into:

• Post-conversion ownership percentages
• New share counts (including dilution effects)
• Conversion outcomes under common note mechanics, such as:

  • Conversion at a stated discount
  • Conversion at a valuation cap
  • Conversion using the “lower of” approach (cap vs. discount)
  • Handling additional terms that often appear in note templates (depending on what you enter)

Because cap table math is mostly spreadsheet algebra (not courtroom questions), the calculator is designed to be practical: you input the deal terms, it outputs the numbers you can plug into your fundraising documents, internal forecasts, and investor updates.

What Kentucky-specific content shows up here

While cap table conversion math isn’t driven by Kentucky securities statutes, Kentucky’s timing rules can matter for organizing records, deadlines, and investor communications. Kentucky’s limitations period for certain actions is generally 5 years under KRS 500.020, subject to statutory exceptions. Related contract-related rules can also involve 5-year baselines. (See Related reading for the blog link; this section focuses on the calculator.)

When to use it

Use DocketMath’s calculator when you’re facing any of these situations:

• You’re preparing a pre-seed or seed cap table and need to quantify dilution before you talk to investors
• A note is expected to convert (for example, on a priced equity round, maturity, or an automatic conversion trigger—depending on your note)
• You’re comparing scenarios, such as:

  • How ownership changes with a $1.5M vs. $2.5M valuation cap
  • How a 20% discount impacts conversion vs. the cap
  • How different conversion bases change share outcomes
• You’re reconciling investor expectations with internal forecasts
• You need multiple outputs quickly for:

  • Board materials
  • Investor updates
  • Internal decision-making

A quick timing checklist (Kentucky limitations context)

If you’re tracking document timelines and you want a Kentucky baseline, review Kentucky’s limitations periods:

• General 5-year period: KRS 500.020 (5 years)

  • Exception references appear in the statute structure (including “exception P3” in KRS 500.020)
• Another 5-year baseline with exceptions: KRS 500.050 (5 years)

  • Exceptions shown in the statute data include:

    • KRS 500.050 — 5 years — exception P2
    • KRS 500.050 — 1 years — exception P4
    • KRS 500.050(2) — 1 years — exception V3
• Related UCC limitations (5 years): Ky. Rev. Stat. § 355.2-725 (5 years)

  • Exception: “D3” per the provided data

Step-by-step example

Below is a concrete walk-through of how the calculator helps you compute conversion and cap table impact. (These are illustrative numbers; the goal is to show the workflow.)

Example inputs (convertible note)

Assume you have:

• Note principal: $500,000
• Valuation cap: $3,000,000
• Discount: 20%
• Conversion price method: “Lower of” cap-based conversion price or discount-based conversion price
• Next round price (per share): $2.00
• Pre-money shares outstanding (current): 2,000,000
• Reserved option pool (if applicable): 0 for simplicity

Step 1: Convert valuation cap into an implied conversion price

Most valuation-cap notes convert using a cap-based “implied price” derived from:

• Cap / fully diluted shares, depending on the definition used in your note

Because cap table definitions differ, DocketMath’s calculator typically prompts for the key share base it needs (commonly pre-money shares and/or fully diluted shares, depending on how you structure your entry). For this example, assume the calculator uses the current pre-money share count as the conversion base.

In practice, the calculator computes the cap-based conversion share outcome consistently with the share base you enter.

Step 2: Compute discount-based conversion shares

Discount-based conversion generally uses:

• Price per share in the priced round × (1 − discount)

Using the example:

• Round price = $2.00
• Discount = 20%
• Discount conversion price = $2.00 × (1 − 0.20) = $1.60

Then:

• Discount-based conversion shares = $500,000 / $1.60 = 312,500 shares

Step 3: Compute cap-based conversion shares

Cap conversion typically yields a more favorable price (or more shares) when the cap is lower than the implied valuation from the priced round.

For illustration only, suppose the cap math yields:

• Cap-based conversion shares = 350,000 shares

Step 4: Apply “lower of” (cap vs. discount)

“Lower of” usually means the note converts at the more favorable option for the note holder, which often produces more shares (because it uses the lower conversion price).

In a “lower-of price” framework:

• Compare cap-based conversion price vs. discount-based conversion price
• Choose the lower price ⇒ higher share count
• Or equivalently, compare conversion share counts and choose the higher shares

Given the example results:

• Discount-based: 312,500
• Cap-based: 350,000

Choose the cap-based conversion: 350,000 shares

Step 5: Update the cap table

Starting point:

• Pre-money shares: 2,000,000
• New shares from note conversion: 350,000

Post-conversion shares:

• 2,000,000 + 350,000 = 2,350,000 shares

Investor ownership (note holder):

• 350,000 / 2,350,000 = 14.89%

Existing holders ownership dilution (simplified):

• Pre-note holders’ combined ownership decreases proportionally because the denominator increases.

Tip: When you run your own scenarios, treat option pools, warrant shares, and any “as-converted” assumptions consistently across runs. Changing one assumption (like fully diluted shares) can flip which conversion outcome is “better” for the note holder.

Common scenarios

Convertible notes show up in a few recurring patterns. DocketMath’s inputs usually map to these scenarios.

1) Discount-only notes (no valuation cap)

If your note has only a discount and no valuation cap, conversion shares typically depend only on:

• priced round share price
• discount percentage
• note principal (plus any accrued interest rules you enter)

Cap table impact: dilution depends on the next round’s pricing.

Checklist for inputs:

2) Cap-only notes (no discount)

With a valuation cap and no discount, conversion depends mainly on the cap and how the note converts relative to the priced round’s implied valuation.

Checklist:

3) “Lower of” cap and discount

Many notes use the lower-of structure, producing the more favorable conversion price.

Your cap table output can shift dramatically when:

• the priced round is high (cap dominates)
• the priced round is lower (discount dominates)
• the share base definition changes (fully diluted vs. pre-money)

Checklist:

4) Multiple notes converting together

If several convertible notes convert at the same time, you can model each note and then combine:

• total new shares issued
• resulting ownership percentages across holders

Workflow:

5) Conversion at maturity or non-standard triggers

Some notes convert upon maturity rather than a priced equity round. The conversion price mechanism may differ (e.g., using a then-current “fair market value” definition, or using a specific formula).

If your note converts using anything other than the priced round share price, make sure your calculator inputs match that definition (especially any valuation basis fields).

Tips for accuracy

These practical steps help ensure your DocketMath results match your note and your cap table expectations.

Use consistent capitalization definitions

DocketMath outputs rely on the share count basis you enter. Keep these consistent:

• Pre-money shares vs. fully diluted shares
• Whether you include option pool shares in the conversion basis
• Whether you include other convertible instruments already in

Sources and references

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

• Ky. Rev. Stat. Ann. § 367.110

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 California — Full how-to guide with jurisdiction-specific rules