Convertible Note & Cap Table Math Guide for Pennsylvania

What this calculator does

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

DocketMath’s Convertible Note & Cap Table Math Guide (Calculator: /tools/convertible-note-cap-table) helps you translate a Pennsylvania-friendly convertible note deal into a clear post-conversion cap table.

Concretely, the calculator supports the math behind how noteholders become equity when a conversion event occurs—typically:

• Converting a principal amount into shares
• Applying a valuation cap (and/or discount, depending on your terms)
• Handling a conversion that depends on a next financing price per share
• Producing a resulting ownership table that you can compare across alternative term sheets

Because you asked for Pennsylvania context, here’s the key legal timing point that can affect how you plan your bookkeeping and investor communications:

• Pennsylvania’s general statute of limitations (SOL) period is 2 years for claims under the general SOL rule.
• The governing statute is 42 Pa. Cons. Stat. § 5552, with the general period stated as 2 years under the general rule.
• Source: https://www.legis.state.pa.us/WU01/LI/LI/US/PDF/2000/0/0136..PDF

To keep the calculator output usable, you’ll typically model at least two snapshots:

• Pre-conversion cap table (ownership before conversion)
• Post-conversion cap table (ownership after conversion)

The practical value of DocketMath is that you can change inputs (cap, discount, conversion price assumptions) and instantly see how the note’s ownership percentage moves.

When to use it

Use DocketMath’s convertible note and cap table calculator when your situation involves any of the following (especially if you need repeatable, version-controlled numbers):

Practical deal moments

• You’re negotiating a convertible note and need to estimate dilution effects on founders and common holders.
• You’re comparing term sheet versions (e.g., $6M cap vs. $8M cap; 20% discount vs. 15% discount).
• You’re preparing internal investor materials (board decks, cap table backups, diligence responses) where ownership percentages must be consistent.

Conversion event modeling

• The note converts on a qualified financing at a new price per share.
• You’re estimating conversion outcomes for an anticipated financing date or price range.
• Your note terms state conversion mechanics that require a “choose the better of cap vs. discount” style calculation.

Compliance and recordkeeping planning (Pennsylvania context)

Even though SOL is not a cap table concept, Pennsylvania’s 2-year general SOL (42 Pa. Cons. Stat. § 5552) can matter operationally:

• If you’re updating agreements, warranting conversion calculations, or correcting recordkeeping errors, you’ll want your model changes supported by consistent documentation within your company’s dispute-risk timeline.

A common workflow:

• Build the cap table model for your current terms.
• Run “what-if” scenarios for cap and discount.
• Save the output used for decision-making (date-stamped exports, captured inputs, and assumptions).

Step-by-step example

Below is a step-by-step modeling example you can mirror using DocketMath. I’ll keep the numbers simple so you can see how each input changes the output.

Scenario setup (invented numbers for math)

Assume the company has:

• **Existing capitalization (pre-money, pre-conversion)

  • Founder Common: 8,000,000 shares
  • Existing Investors Preferred: 2,000,000 shares
• Convertible note

  • Principal: $1,000,000
  • Valuation cap: $5,000,000
  • Discount: 20% (if your terms apply a discount for the same conversion)
  • Next financing price per share: $1.00/share

To proceed, you need a conversion share price and/or conversion valuation basis. In many convertible note structures, the noteholder converts using whichever yields more shares (i.e., lower effective price) between:

• Cap-based conversion price, and
• Discount-based conversion price.

Important: Cap math can be tricky because it depends on how your note defines “conversion price” and what share denominator is used (e.g., whether it references fully diluted shares, pre-money shares, or another defined number). DocketMath applies cap mechanics based on the inputs and field definitions you enter in the calculator—so rely on the calculator’s labels for the expected denominators.

Step 1: Enter the pre-conversion cap table

In DocketMath, enter your existing holders:

• Founder Common: 8,000,000
• Existing Investors Preferred: 2,000,000

This yields 10,000,000 shares outstanding before the note converts.

Step 2: Enter the note principal and conversion terms

Add the convertible note details:

• Principal: $1,000,000
• Valuation cap: $5,000,000
• Discount: 20%
• Conversion event reference: the next financing price per share = $1.00

Step 3: Compute the effective conversion price (cap vs. discount)

There are two common ways this shows up in deal modeling:

1. Discount path

   • Discount effective price = Next financing price × (1 − discount)
   • $1.00 × (1 − 0.20) = $0.80 per share

2. Cap path

   • Cap-based effective price is derived from how the cap translates to a per-share figure.
   • Common modeling approach: cap ÷ an agreed share count basis (pre-money or fully diluted depending on the note’s definition).

Because the exact cap-to-price conversion depends on the note’s definitions, DocketMath operationalizes this based on the inputs you provide (for example, using the current outstanding shares as the basis, or requiring a “pre-money valuation”/share-count input).

Step 4: Convert principal into shares

Once you have an effective per-share conversion price:

• Conversion shares = Principal ÷ Effective conversion price

Example using the discount path alone:

• Shares = $1,000,000 ÷ $0.80 = 1,250,000 shares

If the cap path produces a lower effective price, it will yield more shares. Many notes apply “most favorable” mechanics, so the model will choose the conversion outcome dictated by your terms.

Step 5: Build the post-conversion cap table

Now add the note conversion shares to the pre-conversion shares:

• Pre-conversion shares: 10,000,000
• Note conversion shares: (computed above, e.g., 1,250,000)
• Post-conversion shares: 11,250,000

Ownership percentages:

If the cap yields a larger conversion share count than the discount path, the note’s post % rises, and the common holders’ post % falls.

Step 6: Run a sensitivity check

To avoid “one number” modeling mistakes, run at least 2–3 variations:

• Change the cap: $5.0M → $6.0M
• Change the discount: 20% → 15%
• Keep the next financing price fixed (for comparability)

DocketMath makes this efficient: you can watch dilution move without redoing the entire table from scratch.

Common scenarios

Convertible note math isn’t one-size-fits-all. Here are modeling situations DocketMath can help you represent clearly (and how outputs typically move).

1) Valuation cap only (no discount)

• Input: cap specified; discount = 0% or omitted
• Output behavior:

  • Note converts at the cap-determined effective price.
  • Investors can more easily compare “cap-only” outcomes across financings.

Checklist for this scenario:

2) Discount only (no cap)

• Input: discount specified; cap omitted
• Output behavior:

  • Effective price tracks the next round price.
  • If next financing is priced higher, discount mechanics still generally yield a lower conversion price than the round price.

Checklist:

3) Cap and discount both present

Many notes apply the more favorable of cap-based vs. discount-based conversion. In the calculator, that typically means:

• The effective conversion price becomes the lower of:

  • cap-based price, and
  • discount-based price

Output behavior:

• If the cap is relatively tight, it dominates.
• If the cap is relatively high, the discount dominates.

4) Multiple notes / multiple tranches

When you model more

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