Convertible Note & Cap Table Math Guide for Maryland

What this calculator does

DocketMath’s Convertible Note & Cap Table Math Guide for Maryland calculator is designed to help you model the two most math-heavy outcomes of a typical convertible note:

• Conversion economics (how much equity the note turns into)
• Cap table impact (how ownership percentages change after conversion, including dilution)

In practice, convertible notes often include terms like:

• Principal (the amount invested)
• Interest (if interest converts, or if it accrues until conversion)
• A conversion price mechanism (discount vs. valuation cap, or both)
• Valuation cap (a maximum pre-money valuation used to calculate conversion)
• Discount rate (a percentage discount off the price in a future round)
• Optional conversion vs. automatic conversion upon a triggering event

The calculator focuses on the arithmetic you need to answer questions founders, investors, and counsel ask constantly, such as:

• “How many shares will the note holder receive if the next round’s price is $X?”
• “What happens to the founders’ percentage if the note converts?”
• “Which term dominates if both a cap and a discount are present?”

What the output usually answers

Use the tool to generate:

• A computed conversion price
• The number of shares issued upon conversion
• Updated ownership percentages across the cap table
• A “before vs. after” view of dilution

When to use it

Run the DocketMath calculator when the cap table must reflect conversion math tied to specific deal terms. Common triggers include:

• A priced equity financing is planned

  • You need conversion results using the next round’s price or pre-money valuation.
• A note includes a valuation cap

  • You need to see how the cap changes the effective conversion price.
• A note includes a discount rate

  • You want to compare discount-driven conversion vs. cap-driven conversion.
• Interest handling is unclear

  • You need to model whether interest is:

    • included in the conversion principal,
    • excluded from conversion, or
    • converted separately.
• Multiple notes convert in the same transaction

  • The order and aggregation can materially change the cap table.
• You’re updating investor communications

  • A consistent model reduces “spreadsheet drift” between stakeholders.

Timing considerations in Maryland-related filings (SOL context)

If your workflow includes drafting or enforcing rights related to financial instruments, Maryland’s statute of limitations rules can matter procedurally. For example:

• Three-year limitation for many civil claims in Maryland is commonly tied to Md. Code, Cts. & Jud. Proc. § 5-106.
  Source: Findlaw’s statute page: https://codes.findlaw.com/md/courts-and-judicial-proceedings/md-code-cts-and-jud-pro-sect-5-106/?utm_source=openai

  • Exception V2: Md. Code, Cts. & Jud. Proc. § 5-106 — 3 years — exception V2
  • Md. Code, Cts. & Jud. Proc. § 5-205: 3 years — exception M4 (as provided in the jurisdiction data)

Step-by-step example

Below is a realistic walkthrough. Adjust the numbers to match your note’s terms and your company’s charter/capital structure.

Example deal setup (for the calculator model)

Company cap table before conversion

• Common shares outstanding: 8,000,000
• Preferred shares outstanding: 0 (simplifying assumption)
• Option pool: 1,000,000 (we’ll hold constant for this example)

Convertible note terms

• Principal: $500,000
• Interest: $0 for simplicity (set to 0 if your agreement doesn’t add interest to the conversion base)
• Valuation cap: $8,000,000
• Discount rate: 20%
• Conversion trigger: next priced equity financing
• Next financing:

  • Pre-money valuation: $10,000,000
  • Price per share implied by financing: computed using the pre-money plus share structure (in practice, this comes from your financing docs)

Assume the financing price per share effectively corresponds to:

• “As-converted” implied price: $1.00/share
• So the note conversion compares:

  • Cap-based conversion price
  • Discount-based conversion price

If you want to calculate this directly for your inputs, use the tool here: DocketMath Convertible Note & Cap Table Math Guide for Maryland Calculator.

Step 1: Compute the conversion price from the valuation cap

Conceptually:

• Cap converts as if the company were valued at the cap rather than the round’s pre-money.

If the implied conversion price under the cap is, for illustration, $0.80/share, then:

• Cap-based conversion price = $0.80/share

(Your calculator derives this from your cap, share count assumptions, and how the note agreement defines “fully diluted” or “pre-money” for conversion.)

Step 2: Compute the conversion price from the discount

Discount means the note converts at a discount to the financing price.

If the financing price is $1.00/share and discount is 20%:

• Discount conversion price = $1.00 × (1 − 0.20) = $0.80/share

So in this example:

• Cap-based price = $0.80
• Discount-based price = $0.80

Step 3: Choose the better (more favorable to the note holder) price

Most convertible notes use the lower conversion price (higher share count) when both cap and discount apply.

• Final conversion price = min($0.80, $0.80) = $0.80/share

Step 4: Compute shares issued to the note holder

• Conversion principal = $500,000
• Shares = $500,000 / $0.80 = 625,000 shares

Step 5: Update the cap table

Before conversion:

• Common shares: 8,000,000
• Option pool: 1,000,000
• Total (ignoring options vs. fully diluted definitions for simplicity): 9,000,000

After conversion:

• Add note conversion shares: +625,000
• New common shares (simplified): 8,000,000 + 625,000 = 8,625,000

If the option pool remains unchanged:

• Total remains 9,000,000 + 625,000 = 9,625,000

Ownership after conversion (simplified):

• Note holder: 625,000 / 9,625,000 ≈ 6.49%
• Existing commonholders: 8,625,000 / 9,625,000 ≈ 89.59%
• Option pool treated as separate equity bucket in this simplified view: 1,000,000 / 9,625,000 ≈ 10.39%

Step 6: Validate against the note’s definitions

Before finalizing, verify that your model aligns with:

• whether interest converts,
• whether conversion is based on pre-money or post-money,
• whether the note converts into preferred or common (and how it maps),
• any cap-table rounding rules (shares often round down/up depending on drafting).

Common scenarios

Convertible note conversions don’t always behave like the simple “cap vs. discount choose the lower price” story. Here are frequent scenarios where the calculator helps you see differences quickly.

1) Cap-only notes vs. discount-only notes

Use the calculator to compare:

• Cap-only: conversion price tied to the cap, regardless of the discount.
• Discount-only: conversion price tied to the financing price minus the discount.

Checklist:

2) Both cap and discount present

Typical logic:

3) Interest converts (or not)

Some notes:

• accrue interest until conversion and convert it into equity, and/or
• add interest to principal before calculating shares.

Model variations:

4) Multiple notes in one round

When several notes convert simultaneously:

• each note’s conversion shares aggregate,
• the denominator (depending on definitions) may change for subsequent calculations.

Practical approach:

5) Change of control / non-financing triggers

Some convertible instruments convert upon events other than a priced round (e.g., sale of the company). Math can differ because:

• there may be a deemed conversion price or
• a “multiple” / “liquidity preference” style calculation.

Use the calculator when the note specifies those formulas, but confirm your inputs match the triggering clause.

6) Rounding differences and “share issuance” constraints

Even if the math is straightforward, issuance mechanics can introduce differences:

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