Convertible Note & Cap Table Math Guide for Michigan

What this calculator does

DocketMath’s Convertible Note & Cap Table Math calculator helps you model how a Michigan company’s convertible note can convert into equity and what that means for the cap table under a set of common terms—without forcing you to manually reconcile dilution across multiple rounds.

In practice, you’ll use it to compute outcomes like:

• Conversion price based on the note’s discount and/or valuation cap
• Number of new shares issued to the noteholders at conversion
• Post-conversion ownership percentages for:

  • the noteholders
  • existing equity holders
  • any option pool or other pre-existing issuances (if you include them in your inputs)

Because cap table errors are usually math errors (not strategy errors), this tool is designed to make the mechanics explicit:

• Every conversion assumption you enter changes share counts deterministically.
• You can see how altering cap, discount, or conversion trigger price shifts ownership.

Primary tool CTA: **Convert your inputs using DocketMath

When to use it

Use the DocketMath calculator when you need a clean, audit-friendly way to run “what if” scenarios around a convertible note. Common triggers include:

• You’re preparing for a priced equity round and need to estimate dilution to noteholders.
• You’re assessing how a valuation cap changes outcomes compared to relying only on a discount.
• You’re modeling a next financing with a known share price to determine whether the cap or discount is more favorable to the noteholders.
• You need to reconcile a cap table before drafting documents or negotiating terms.

You’ll get the most value when you can gather these inputs:

• Pre-money valuation (or effective price per share, depending on your approach)
• Outstanding shares (and whether there’s an option pool already reserved)
• Note terms:

  • principal amount
  • discount rate (e.g., 20%)
  • valuation cap (e.g., $5,000,000)
• Any conversion mechanics you’re modeling (e.g., conversion at the “next round” price)

Quick decision checklist

Step-by-step example

Below is a concrete walkthrough using numbers that are easy to verify. This is a math example, not legal advice about how your specific note must convert under its exact contract language. Convertible notes can vary a lot; always check the actual note terms.

Scenario setup (Michigan company, model inputs)

Assume you have:

Company capitalization before conversion

• Existing shares outstanding: 8,000,000
• Option pool (reserved, included in fully diluted base): 1,000,000
• Total pre-conversion fully diluted shares base (for modeling): 9,000,000

Convertible note

• Note principal: $1,500,000
• Discount: 20%
• Valuation cap: $5,000,000

Next priced equity round

• Post-money valuation used to derive price per share: $10,000,000
• To keep the example simple, assume the share price is derived from a capitalization base of 9,000,000 shares:

  • Share price = $10,000,000 / 9,000,000 = $1.111111... per share

Step 1: Compute cap-based conversion price

Cap-based logic (typical modeling approach):

• Cap implies an effective conversion valuation of $5,000,000
• Effective cap-based price per share = $5,000,000 / 9,000,000
• Cap-based price per share = $0.555555...

Step 2: Compute discount-based conversion price

Discount applies to the round price:

• Round price per share: $1.111111...
• Discount price = $1.111111... × (1 − 0.20)
• Discount conversion price = $0.888888...

Step 3: Choose the conversion price that yields the most shares (common modeling convention)

In many convertible note structures, conversion occurs at the more favorable price to the holder (lower price = more shares). Under that convention:

• More favorable (lower) price = $0.555555... (cap beats discount)

So conversion price used = $0.555555...

Step 4: Compute noteholder shares issued on conversion

• Shares = Note principal / Conversion price
• Shares = $1,500,000 / $0.555555...
• Shares ≈ 2,700,000

Exact math:

• Since $0.555555... is $5/9, then $1,500,000 ÷ (5/9) = $1,500,000 × 9/5 = 2,700,000.

Step 5: Produce the post-conversion cap table

**Before conversion (modeled base)

• Existing holders: 9,000,000 shares
• Noteholders: 0

After conversion

• Existing holders: 9,000,000
• Noteholders: 2,700,000
• Total post-conversion shares: 11,700,000

Ownership percentages:

• Noteholders: 2,700,000 / 11,700,000 = 23.0769%
• Existing holders: 9,000,000 / 11,700,000 = 76.9231%

How this maps to DocketMath inputs

In the DocketMath tool, you’d typically provide:

• Note principal = 1,500,000
• Valuation cap = 5,000,000
• Discount = 20%
• Round valuation (or round price per share) = 10,000,000 (or 1.111111...)
• Shares outstanding / fully diluted base = 9,000,000

Then outputs should reflect:

• Effective conversion price chosen
• Conversion shares issued
• Post-conversion total shares
• Ownership percentages

Common scenarios

Convertible note math rarely fits one template. Here are recurring scenarios that change the outputs in meaningful ways.

1) Cap only vs. discount only

• Cap only: Conversion price locks to cap-based math; discount doesn’t affect it.
• Discount only: Conversion price follows round price × (1 − discount); cap doesn’t apply.

Impact:

• If the cap is high relative to the round, cap-based conversion may be less favorable (higher price) than discount.
• If the cap is low, cap-based conversion dominates and noteholders take a larger ownership stake.

2) Cap and discount both present

When both are present, the model must pick the effective conversion price. The outcome flips depending on relative magnitudes:

• If cap-based price < discount-based price → cap dominates
• If discount-based price < cap-based price → discount dominates

Checklist:

3) Different “share base” assumptions

The biggest hidden variable in cap table work is the denominator:

• Is conversion priced against fully diluted shares?
• Or only issued and outstanding shares?
• Does the option pool count as reserved or only later?

Impact:

• A larger denominator lowers the implied price per share, which increases conversion shares.
• A smaller denominator raises price per share, which decreases conversion shares.

4) Multiple notes or tranches

If the company has several notes with different caps/discounts:

• Each note may convert at a different effective price.
• Total conversion shares become the sum of each note’s conversion shares.

Modeling workflow:

• Run each note separately or enter multiple entries if supported.
• Confirm the tool aggregates them correctly into a single post-conversion cap table.

5) Rounds with different valuations over time

If there’s a later financing after an initial conversion event:

• Your cap table at each time point depends on what already converted.
• Subsequent dilution compounds.

Practical use:

Tips for accuracy

Convertible note math is straightforward—but precision depends on consistent inputs. Use these guardrails to reduce mistakes before you rely on the results.

1. Use one share-base definition across all steps

• If you compute the share price using fully diluted shares, conversion should be calculated using the same denominator.

1. Verify the “effective price” logic

• Ensure your model selects the effective conversion price in the same way your note’s formula does.
• Common modeling conventions choose the lower price (more shares) for the noteholder, but your instrument may differ.

1. Reconcile rounding

• Finance math often uses pennies or fractions.
• If the tool rounds conversion price early, it can change share count slightly.
• Check whether DocketMath outputs share count with decimals or rounds to whole shares.

1. Track what’s included in “pre-conversion”

• Decide whether the option pool is already included in the base.
• If not, model it separately to avoid double-counting later.

1. Time-based planning in Michigan: use the general 6-year SOL as a default For time horizons tied to civil actions in Michigan, remember:

• Michigan’s general statute of limitations for certain civil actions is 6 years under MCL § 767.24(1) (source: https://www.m

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