Convertible Note & Cap Table Math Guide for New Jersey

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 New Jersey (calculator: /tools/convertible-note-cap-table) helps you model how a convertible note typically impacts a company’s capitalization table—especially around the moment of conversion.

In practical terms, the calculator supports the core math behind:

• Converting principal (and, if you choose, accrued interest) into equity
• Applying a conversion price driven by a discount and/or a valuation cap
• Updating the post-conversion ownership percentages across common investors/holders you provide
• Producing a clean “before vs. after” cap table so you can sanity-check outcomes quickly

Because your note may convert at different times or under different triggers, the same underlying inputs can yield different results. This guide focuses on the mechanics so you can interpret the calculator outputs with confidence.

When to use it

Use this calculator and guide when you need fast, repeatable cap table modeling for New Jersey deals that involve convertible instruments.

Consider using it in these scenarios:

• You’re preparing a board memo or investor update that requires post-conversion ownership estimates
• You’re comparing two sets of terms (e.g., 10% discount + $5M cap vs. 20% discount + no cap) and want to see numeric effects
• You need to evaluate how interest affects conversion economics (e.g., converting $500,000 plus $30,000 accrued interest)
• You’re validating that your assumptions match typical conversion formulas:

  • Discount-based conversion price
  • Cap-based conversion price
  • Which one is chosen (often the more favorable to the noteholder, depending on the note terms)

Also, if you’re working on note disputes or document review, New Jersey’s general contract limitations period often comes up. Under N.J.S.A. 12A:2-725, certain contract claims have a 4-year statute of limitations. Here’s the key reference point:

• Statute of limitations (SOL): 4 years
• Statute: N.J.S.A. 12A:2-725
• Source: https://law.justia.com/codes/new-jersey/title-12a/section-12a-2-725/
• Sub-rules: includes an exception D3

Step-by-step example

Below is a concrete example you can mirror in DocketMath: Convertible Note → Conversion at a priced round.

Scenario inputs (you choose these based on your note)

Assume the company is raising a priced equity round at a pre-money valuation and sets a new-money valuation. For the calculator, you’ll typically provide:

• Current pre-money valuation: $8,000,000
• Convertible note:

  • Principal: $1,000,000
  • Accrued interest to conversion date (optional): $60,000
  • Total convertible amount (principal + selected interest): $1,060,000
  • Discount: 20%
  • Valuation cap: $7,000,000
• Existing capitalization:

  • Pre-money fully diluted shares outstanding (or current shares plus option pool details as required by your model): 10,000,000 shares
• New round parameters:

  • Post-money share count depends on how you input the priced round. Some models use new shares purchased; others rely on a conversion-price approach.

Because convertible notes are contract-specific, your note may define “conversion price” using a specific formula (and may reference price per share). DocketMath’s calculator is designed to compute outcomes based on the inputs you provide.

Step 1: Compute the discount-based conversion price

A common approach is:

• Discount conversion valuation = pre-money valuation × (1 − discount)
• Discount-based conversion price = (discount valuation) / (pre-money fully diluted shares)

Using the numbers:

• Discount valuation:
  $8,000,000 × (1 − 0.20) = $6,400,000
• Discount-based “price per share” (conceptual):
  $6,400,000 / 10,000,000 shares = $0.64/share

Step 2: Compute the cap-based conversion price

Cap-based conversion generally uses:

• Cap valuation = min(actual pre-money valuation, cap)
• Here, cap valuation is $7,000,000 (and pre-money is $8,000,000)
• Cap-based price per share = cap valuation / fully diluted shares
  $7,000,000 / 10,000,000 = $0.70/share

Step 3: Determine the noteholder’s conversion price

Many convertible notes apply the more favorable price to the noteholder (i.e., the lower per-share price). In this example:

• Lower of $0.64 and $0.70 is $0.64/share
• Conversion price selected: $0.64/share

Step 4: Convert note amount into shares

• Total convertible amount = principal + interest = $1,060,000
• Shares received = $1,060,000 / $0.64/share
  = 1,656,250 shares

Step 5: Update post-conversion cap table

If the company previously had 10,000,000 fully diluted shares, then:

• Post-conversion shares ≈ 10,000,000 + 1,656,250
  = 11,656,250 shares

Then the noteholder ownership percentage is roughly:

• Noteholder % ≈ 1,656,250 / 11,656,250
  ≈ 14.21%

Your DocketMath output should show a structured “cap table delta” showing:

• Noteholder new shares
• Updated total outstanding shares (post-conversion)
• Ownership % changes for each holder you entered

Step 6: Reconcile with the priced round inputs

If your priced round adds investor shares in addition to conversion, your post-money ownership mix changes. DocketMath’s calculator is helpful when you input the new round data in the format it expects—because the share denominator for ownership can change depending on whether you’re modeling:

• Conversion only (no new investors), or
• Conversion plus new-money share issuance

Common scenarios

Convertible notes don’t behave the same way across every term sheet. Here are common modeling situations where the math (and your calculator inputs) typically differ.

1) Interest is excluded from conversion

Some notes convert only the principal. If your agreement excludes accrued interest:

• Set accrued interest = 0 in the calculator
• Shares issued will drop proportionally
• Ownership percentage decreases versus a model that includes interest

Quick effect:
Shares = (principal only) / conversion price.

2) Discount only (no cap)

If the note has:

• Discount: e.g., 25%
• Valuation cap: none

Then conversion price is driven by discount valuation only (conceptually):

• Discount valuation = pre-money × (1 − discount)
• Conversion price = discount valuation / shares baseline

Calculator takeaway: omit cap inputs or set them to your calculator’s “not applicable” convention.

3) Cap only (no discount)

If the note has:

• Valuation cap: e.g., $6M
• Discount: none

Then the cap becomes the controlling valuation in scenarios where pre-money > cap.

Quick effect:
If pre-money is below cap, the cap may not matter (depending on the note’s wording).

4) Both cap and discount present

When both exist, the note chooses the more favorable economics to the holder, commonly by taking:

• Lower conversion price (or lower implied share price)

In practice:

• A high pre-money can activate the cap
• A meaningful discount can still dominate if it yields a lower conversion price

5) Multiple notes converting together

If you have several convertible notes, cap table impact depends on:

• Each note’s principal, interest inclusion, discount, and cap
• The shared denominator (fully diluted shares baseline)
• Whether the notes convert at the same effective date/trigger

Modeling approach in the calculator:

• Enter each note with its own terms and amount
• Ensure the calculator uses a consistent baseline share count and priced-round assumptions

6) Conversion timing affects interest

If conversion occurs later:

• Accrued interest increases
• Total conversion amount increases
• Ownership increases for the noteholder

This is especially visible if the calculator lets you enter:

• Interest rate (if it computes interest), or
• Direct accrued interest to date

Tips for accuracy

To get outputs you can trust, treat cap table modeling like engineering: verify inputs, then verify outputs.

1) Confirm what your “share baseline” represents

Your conversion math needs a consistent denominator. Decide whether the calculator expects:

• Fully diluted shares at the relevant moment (including options/SAFEs/other pools), or
• Current outstanding shares only

If you mix those concepts (e.g., use fully diluted in one place and basic outstanding in another), you can create a systematic bias in ownership percentages.

2) Keep valuations and prices aligned

Some models ask for:

• Pre-money valuation and fully diluted shares, then compute price per share

Others ask for:

• A direct priced-round price per share and use it with discount/cap

If DocketMath asks for valuations, don’t try to also manually “pre-convert” to a price and then double-apply discounts.

3) Sanity-check with a ratio test

After you get output

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