Convertible Note & Cap Table Math Guide for South Carolina

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 South Carolina is built around one core goal: help you model how a convertible note (with a valuation cap and discount) flows into your post-money cap table when conversion happens.

This matters because conversion math is often the point where founders, investors, and advisors disagree—especially when documents include both a discount rate and a cap, or when there are multiple rounds.

What you can model

Using DocketMath’s convertible-note-cap-table calculator (US-SC), you can work through inputs that typically drive the outcome:

• Note principal (the amount invested under the note)
• Conversion terms

  • Valuation cap (the maximum price per share the note converts at)
  • Discount rate (a lower conversion price than the next round’s price)
  • Whether both apply (most notes use “lower of cap price vs. discounted next-round price” mechanics)
• Next financing terms

  • Next round price per share (or enough inputs for the calculator to derive it)
  • Pre-money capitalization assumptions you provide (e.g., common shares outstanding and/or option pool treatment, depending on your data)
• Conversion timing

  • Conversion on a specific event (e.g., “qualified financing”) vs. other conversion triggers

Output you should expect

The calculator helps you compute:

• Conversion price (cap-based vs. discount-based—whichever produces the lower price in typical structures)
• Shares issued to the note (note principal ÷ conversion price)
• Post-conversion ownership

  • Percent ownership for the note holder
  • Updated implied dilution for existing holders

When to use it

Use DocketMath’s convertible note cap table modeling when you need to answer questions like these—where the numbers drive decisions.

Common timing triggers

• Before you sign the convertible note

  • You want to sanity-check what the cap and discount would imply in a future priced round.
• Before you negotiate terms in the next financing

  • You want a defensible model of how the note holder will convert in the “qualified financing.”
• When you’re preparing investor updates

  • It’s common to show “fully diluted” scenarios so stakeholders understand potential dilution.
• During diligence

  • Buyers and new investors often request cap table projections for notes with caps/discounts.

South Carolina timing context (non-math, but frequently requested)

You may also see conversion disputes tied to timing—especially when someone claims a demand, notice, or enforcement action was late. In South Carolina, the general statute of limitations for civil actions is often cited as a 3-year period under S.C. Code § 15-1.

• The statute is organized in a way that results in 3 years being a key reference point in many contexts:

  • GS 15-1 — 3 years — exception V1
  • South Carolina Code of Laws § 16-1-20 — 3 years — exception V3

While the calculator itself doesn’t compute limitations timelines, this 3-year framework is often relevant when you’re documenting your position and transaction timeline.

Step-by-step example

Below is a practical example that shows how changing each input changes the conversion outcome. You can mirror this structure in DocketMath.

Example assumptions (simple, but realistic)

You have a convertible note with:

• Note principal: $250,000
• Valuation cap: $5,000,000
• Discount rate: 20%
• Next priced financing:

  • Pre-money valuation: $8,000,000
  • Next-round price per share: derived from the round structure you input to the calculator
  • (For this guide, we’ll treat the next-round “implied price per share” as an input conceptually—use your document’s price and share count to be precise.)

Also assume:

• Common shares outstanding before conversion: 2,000,000 shares
• Option pool: not included in this simplified example (if your model includes it, include it consistently across scenarios)

Step 1: Determine the cap-based conversion price

Conceptually, the valuation cap creates a maximum conversion valuation.

• Cap-based valuation used for conversion: $5,000,000
• Conversion price is based on dividing that valuation by the fully-diluted share count you choose for the conversion calculation.

In the calculator, you’ll either:

• provide the relevant share count base (depending on how DocketMath prompts), or
• provide the needed round inputs so it can compute the implied per-share price consistently.

Result of Step 1: a cap-based price per share.

Step 2: Determine the discount-based conversion price

The discount applies to the next financing price.

• Discount rate: 20%
• Discount-based conversion price:

  • Next-round price per share × (1 − 0.20)
  • That produces a cheaper share price than the next round for the note holder.

Result of Step 2: a discount-based price per share.

Step 3: Choose the conversion price that governs the note

Most cap+discount notes use the lower of:

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

So the note converts at:

• **Conversion price = min(cap-based price, discount-based price)

Result of Step 3: the single conversion price the note uses.

Step 4: Convert note principal into shares

Once you have conversion price:

• Note shares issued = note principal ÷ conversion price

Using the example principal:

• **$250,000 ÷ (conversion price)

Result of Step 4: the share count issued to the note holder.

Step 5: Update the cap table and compute ownership

With:

• shares outstanding before conversion, plus
• shares issued to the note holder,

you can compute:

• Post-money total shares
• Note holder ownership % = note shares / total shares

Also compute dilution for existing holders.

What to watch when you run the calculator

The calculator output changes sharply when you adjust:

• Valuation cap (lower cap → typically higher conversion share count → higher dilution)
• Discount rate (higher discount → lower conversion price → more shares)
• Share count base used for conversion price calculations (inconsistent inclusion of option pool / reserved shares can materially change per-share math)

Common scenarios

Real notes don’t live in “one perfect case.” Here are scenarios where teams commonly need DocketMath, plus what to check.

1) Cap only (no discount)

Inputs you use:

• Valuation cap present
• Discount rate set to 0% or omitted (depending on your calculator structure)

Expected behavior:

• Conversion price is driven entirely by the cap-based math.
• Next-round pricing matters mainly because your cap-based price relies on the conversion share basis, not because the discount is applied.

2) Discount only (no cap)

Inputs:

• Discount rate present
• Valuation cap absent

Expected behavior:

• Conversion price is based on the discounted next-round price.
• If you later change the next round’s implied per-share price, your conversion outcome shifts immediately.

3) Both cap and discount (choose “lower price”)

This is the most frequent source of confusion.

Checklist:

• Confirm your note’s “cap vs. discount” rule:

  • Many notes convert at the lower price (more favorable to the note holder).
• Ensure your model doesn’t accidentally apply both as additive.

4) Multiple notes converting in the same event

If several convertible notes convert:

• Run each note with its own principal and terms.
• Ensure the post-conversion share pool updates correctly before applying the next note’s conversion (or verify how the calculator applies multiple conversions in sequence).

A quick consistency check:

• Total issued shares to all notes
  should match the sum of each note’s computed issuance under the same conversion price logic.

5) Scenario planning: “big round” vs. “small round”

Even without changing the note terms, different next-round valuations change:

• Next-round price per share
• Discount-based conversion price
• In cap-heavy structures, whether the cap is the limiting factor

A helpful way to model:

• Run 3 scenarios:

  • lower valuation financing
  • mid valuation financing
  • higher valuation financing

You’ll see whether the cap or discount governs in each scenario.

Conversion ownership sanity-check table

Use this type of table when explaining outcomes internally:

(The “governs” column depends on your actual cap/discount math and your chosen share basis.)

Tips for accuracy

These steps reduce the most common modeling and reconciliation problems.

Lock down your definitions before you enter numbers

Before using DocketMath:

• Confirm how your documents define:

  • conversion event (e.g., “qualified financing”)
  • conversion valuation basis (what “fully diluted” includes)
  • whether the discount applies to the same price per share as the cap math

Use consistent “share count bases”

When cap math divides valuation by shares, and discount math references next-round price per share, the share basis must align with the same capitalization assumption.

A practical approach:

• Decide what “pre-conversion

Sources and references

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

• S.C. Code Ann. § 34-31-20

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