Convertible Note & Cap Table Math Guide for Texas

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 model how a convertible note—typically including terms like a valuation cap and/or discount—changes a company’s cap table after the note converts.

You can use it to estimate, in Texas (and generally anywhere), how the note’s conversion impacts:

• Pre-money and post-money capitalization
• Issuance math (how many shares the note converts into)
• Effective price per share under a discount and/or cap
• Ownership percentages for founders, investors, and noteholders

Because you provided Texas jurisdiction data: Texas has a general statute for criminal procedure deadlines in Texas Code of Criminal Procedure, Chapter 12. That chapter is not a source for convertible note corporate mechanics or securities conversion math.

You also provided a “general SOL period” input: 0.0833333333 years. In this guide, that number is treated as a default period tied to the statute context you referenced, and not as a convertible note conversion deadline. It should not be used as an assumption for conversion timing. (Per your note: the provided “general/default” period is not claim-type-specific in the data you supplied, so it is best treated only as a default for that statute’s context—not as a conversion rule.)

When to use it

Use the DocketMath calculator when you need to quantify the cap table impact of a convertible note at one of these common moments:

• At issuance: sanity-check what the cap and discount imply, even before a priced round happens.
• Before a priced equity financing: compare outcomes under different valuation outcomes (for example, $8M vs. $12M pre-money).
• When negotiating convertible note terms: evaluate tradeoffs between:

  • Valuation cap (constrains conversion price)
  • Discount (reduces conversion price versus the priced round)
  • Interest accrual (if interest converts alongside principal)
• When updating your cap table records: ensure the ownership outcomes you report are consistent with the conversion math you intend.

Quick checklist (inputs you should have, ideally all in one place):

• You have a cap table baseline (current shares and ownership)
• You know the conversion trigger (commonly: an equity financing round)
• You know the note terms you want to model: principal, discount, and/or cap
• You know the priced round price per share or enough inputs for the calculator to derive it
• You know whether interest converts (and how interest is calculated)

If any input is missing, the calculator can still be useful for “what-if” exploration—but the outputs will reflect the assumptions you supply.

Step-by-step example

This is an illustrative example using common convertible note “effective price” conventions. Because different notes use different definitions (especially around rounding, share base, and interest), treat this as a workflow you can mirror—not a guarantee that your exact note converts identically.

Example scenario inputs

Assume the company has:

• Current fully diluted shares (pre-round): 10,000,000
• Founder shares: 8,000,000
• Other current holders: 2,000,000 (for simplicity)
• Next equity (priced) financing:

  • Pre-money valuation: $20,000,000
  • Post-money valuation: $22,000,000 (implied by $2,000,000 new money)
  • New money investment: $2,000,000
  • New shares in the round: 1,000,000
  • Implied price per share: $22,000,000 / 11,000,000 shares = $2.00/share

Convertible note terms:

• Note principal: $1,000,000
• Valuation cap: $15,000,000
• Discount: 20% (convert at 80% of the priced round price)
• Interest: set to $0 in this simplified example (if your note accrues interest, you would include it as an added amount to be converted)

Step 1: Determine the priced-round share price

Most workflows need a price per share input.

Here we used:

• Post-money shares = pre-round shares + new shares = 10,000,000 + 1,000,000 = 11,000,000
• Price per share = $22,000,000 / 11,000,000 = $2.00/share

If your note or your cap table workflow defines inputs differently, the calculator may ask for price per share directly or for valuations/new money and derive it.

Step 2: Compute the discount conversion price

With a 20% discount:

• Discount price = $2.00 × (1 − 0.20) = $1.60/share

Step 3: Compute the cap conversion price

A common modeling approach converts the cap valuation into an effective cap price per share by dividing the cap pre-money by the relevant fully diluted share base:

• Cap price = cap pre-money / fully diluted pre-money shares
• Cap price = $15,000,000 / 10,000,000 = $1.50/share

Step 4: Choose the effective conversion price

The most common structure is “lower price wins”:

• Effective conversion price = **min(cap price, discount price)
• Effective conversion price = min($1.50, $1.60) = $1.50/share

Step 5: Convert principal to shares

• Conversion shares = principal / effective conversion price
• = $1,000,000 / $1.50 = 666,666.67 shares

In practice, shares may be rounded (up, down, or to whole shares) depending on the note and administrative practice. For modeling, choose the rounding rule that matches your documents.

Example rounding choices:

• 666,667 shares (rounded up), or
• 666,666 shares (rounded down)

Step 6: Update totals and ownership

Start with the post-priced-round baseline, then add conversion shares.

• Post-priced-round shares = 10,000,000 + 1,000,000 = 11,000,000
• Add note conversion shares: +666,667
• New total shares after conversion: 11,666,667

Ownership example:

What to watch: if you change only one input at a time (cap up/down, discount up/down, interest on/off), you’ll see how the note’s share allocation and ownership shift.

Common scenarios

Convertible note conversion math most often differs across these scenarios. DocketMath helps you quantify outcomes quickly—especially when comparing “side-by-side” cases.

1) Only a valuation cap (no discount)

If the note has a cap but no discount, the effective conversion price is usually the cap price only.

• Effective conversion price: cap price

Cap-focused outcome: noteholders tend to do better when the priced round implies a valuation above the cap threshold.

2) Only a discount (no valuation cap)

If the note has a discount but no cap, the effective conversion price is usually derived from the priced round:

• Effective conversion price = **priced-round price × (1 − discount)

Discount-focused outcome: noteholders benefit whenever the priced round price is high enough that the discount materially improves their effective conversion rate.

3) Both cap and discount (the “lower price wins” structure)

If both are present, the most common approach is:

• Effective conversion price = **min(cap price, discount price)

Interpretation:

• If the priced round is “expensive” (high per-share price), the cap may be more favorable.
• If the priced round is “cheap,” the discount may be more favorable.

4) Interest accrues and converts

Many notes accrue interest (for example, annually) and may convert principal + accrued interest.

Modeling approach:

• Convert principal plus accrued interest
• Apply the same effective conversion price to the total converted amount

Interest can materially affect outcomes if conversion occurs long after issuance and/or if interest rate and principal are significant.

5) Multiple notes with different terms

If you have multiple convertible notes, the cap table impact is the sum of each note’s conversion shares, with each note using its own terms (cap/discount/interest/rounding).

Practical tip:

• Model each note separately (or ensure the calculator can accept multiple entries), then compare the combined ownership result to your baseline.

Tips for accuracy

• Use consistent share bases. Cap price calculations often depend on the “share base” definition (for example, current fully diluted shares). If you change the share base, your cap price—and therefore conversion shares—will change.
• Match the note’s effective price rule. Common logic is “lower of cap price vs. discount price,” but confirm your modeling matches your note’s definition.
• Be explicit about rounding. If your cap table policy says whole shares only, reflect it consistently.

Sources and references

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

• Tex. Bus. & Com. Code § 27.001

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