In: Finance
You own 100% of your company. You negotiate a $500,000 Convertible Debt Loan from an Angel group. It is convertible Debt loan from an Angel group. It is convertible into stock when you raise your next equity round, and will convert at a price which is a 25% discount to the next round's premoney valuation. It has a Cap of $7m on the Conversion Valuation. A year later, you raise your first equity round at a premoney valuation of $8m. what percent of your company has the lender converted its loan into?
Pre money valuation is valuation of a company without external funding
So premoney valuation is 8 million without external debt
Calculation: equity to be issued to lender is
We shall give equity at 25% discount
So if we issue 666667 equity at 25% discount it will be equal to 500000
So percent of ownership is 666667/8666667= 7.69 %
Working note
Calculation of equity to be issued
Let equity is x
X -25x/100 = 500000
So x is 666667