Worked example: convertible note cap table math in North Carolina

Convertible note math is already tricky. Adding jurisdiction-specific wrinkles—like North Carolina’s securities and corporate law context—can make it even harder to sanity‑check your cap table.

This worked example walks through a realistic North Carolina–based seed financing using the DocketMath convertible note cap table calculator, step by step:

• What inputs you’d enter
• How the notes convert
• How ownership changes at the priced round
• How sensitive the result is to valuation and discount changes

You can follow along in the calculator here: /tools/convertible-note-cap-table.

Example inputs

Assume you’ve formed a North Carolina C‑corporation (e.g., under the North Carolina Business Corporation Act, N.C. Gen. Stat. Chapter 55) and issued common stock to founders. Later, you raise a small seed round using convertible promissory notes governed by North Carolina law.

We’ll feed the following scenario into DocketMath.

Company and founders

• Jurisdiction: North Carolina (US‑NC)
• Entity type: C‑corporation
• Pre‑money valuation at Series Seed: $8,000,000
• Existing fully diluted common (pre‑financing):

  • Founders: 6,000,000 common shares
  • Existing option pool (granted + ungranted): 1,000,000 shares
  • Total pre‑financing fully diluted: 7,000,000 shares

We’ll assume:

• All founders are North Carolina residents or otherwise subject to NC law for their stock grants.
• The corporation has complied with applicable NC and federal securities exemptions for issuing common and notes (but we won’t go into that detail here).

Convertible note terms

You raised $750,000 in convertible notes from three investors:

Additional assumptions:

• Conversion trigger: Qualified equity financing of at least $2,000,000 in new money.
• Interest: Simple interest, not compounding.
• Maturity date: 24 months from issuance. (We’ll assume the financing occurs before maturity.)
• Conversion of interest: Accrued interest converts into the same series of preferred stock as the principal, on the same terms.
• No special NC‑only economic terms: For this example, we’re assuming “standard” seed note economics. Any NC‑specific drafting will typically affect enforceability and process more than the math, but your actual documents control.

New money priced round

You close a Series Seed round with the following terms:

• New cash invested: $3,000,000

• Pre‑money valuation (company‑wide): $8,000,000

• Round price per share (ignoring notes):

  [ \text{Price per share} = \frac{$8{,}000{,}000}{7{,}000{,}000} \approx $1.142857 ]

• Target post‑financing option pool: 15% of fully diluted post‑financing shares (including converted notes and new money, but excluding any warrants for simplicity).

DocketMath’s convertible note cap table calculator can be configured to:

1. Compute accrued interest as of the closing date.
2. Determine each note’s effective conversion price based on the better of:

   • Discounted price (using the round price and note’s discount), or
   • Cap price (using the valuation cap and a defined capitalization base).
3. Solve for:

   • Shares issued to noteholders
   • Shares issued to new money investors
   • Option pool expansion needed to hit 15%
   • Final ownership percentages

Let’s set the round closing date to Jan 1 Y3, so:

• Notes A & B have accrued 2 years of simple interest at 6%.
• Note C has accrued 1.5 years at 8%.

Example run

Below is the step‑by‑step math that DocketMath will replicate (and check) for you.

Run the Convertible Note Cap Table calculator using the example inputs above. Review the breakdown for intermediate steps (segments, adjustments, or rate changes) so you can see how each input moves the output. Save the result for reference and compare it to your actual scenario.

1. Accrued interest

First, compute accrued interest for each note.

• Notes A & B (6% simple for 2 years):

  [ \text{Interest} = $300{,}000 \times 0.06 \times 2 = $36{,}000 ] [ \text{Interest} = $250{,}000 \times 0.06 \times 2 = $30{,}000 ]

• Note C (8% simple for 1.5 years):

  [ \text{Interest} = $200{,}000 \times 0.08 \times 1.5 = $24{,}000 ]

Total converting amount (principal + interest):

2. Baseline round price

As above, ignoring notes:

[ \text{Baseline price per share} = \frac{$8{,}000{,}000}{7{,}000{,}000} \approx $1.142857 ]

DocketMath will use this as the undiscounted price.

3. Discounted prices

For each note:

• Notes A & B (20% discount):

  [ \text{Discounted price} = $1.142857 \times (1 - 0.20) = $0.914286 ]

• Note C (15% discount):

  [ \text{Discounted price} = $1.142857 \times (1 - 0.15) \approx $0.971429 ]

4. Cap prices

We need to define the cap capitalization base. A common approach is:

Cap valuation ÷ existing fully diluted common pre‑financing.

Using that:

• Notes A & B (cap $5,000,000):

  [ \text{Cap price} = \frac{$5{,}000{,}000}{7{,}000{,}000} \approx $0.714286 ]

• Note C (cap $7,000,000):

  [ \text{Cap price} = \frac{$7{,}000{,}000}{7{,}000{,}000} = $1.00 ]

5. Effective conversion prices

For each note, take the better (lower) of the discounted price and cap price:

6. Shares issued to noteholders

Now convert each note’s total (principal + interest) at its effective price:

• Note A:

  [ \text{Shares} = \frac{$336{,}000}{0.714286} \approx 470{,}400 ]

• Note B:

  [ \text{Shares} = \frac{$280{,}000}{0.714286} \approx 392{,}000 ]

• Note C:

  [ \text{Shares} = \frac{$224{,}000}{0.971429} \approx 230{,}600 ]

Rounded shares (DocketMath will let you choose rounding rules):

7. Shares to new money investors

The new cash ($3,000,000) typically buys preferred at

Sensitivity check

To test sensitivity, change one high-impact input (like the rate, start date, or cap) and rerun the calculation. Compare the outputs side by side so you can see how small input shifts affect the result.

Capture the source for each input so another team member can verify the same result quickly.

Related reading

• Worked example: deadlines in New York

• How deadlines rules vary in North Carolina

• Worked example: interest in Maine

• Why we started the DocketMath blog