Comments on: What is the economic difference between a conversion discount and warrant coverage for a convertible note?

By: Yokum

Yokum — Sun, 20 Mar 2011 13:33:01 +0000

No. See answer above in the comments.

By: Greg

Greg — Thu, 17 Mar 2011 00:19:12 +0000

Is “exit value of Series A” the same as “Series A post-money valuation”? For instance, if the Series A VC invests $2mm on a $6mm pre-money valuation, then (regardless of the convertible note amount) the post-money valuation = “exit value of Series A” = $8mm, correct?

By: Yokum

Yokum — Fri, 16 Apr 2010 09:06:15 +0000

@dane – the warrant exercise price could be a discount to the Series A price per share.

By: dane

dane — Thu, 15 Apr 2010 04:33:36 +0000

Is there any reason you can't get a discount on the exercise price of the warrents, say 20%?

The value of the investment with 25% warrant coverage and a 20% conversion discount on the warrents = {[Investment amount / (0.8 * Series A price)] * [0.25] * [exit value of Series A - Series A warrant exercise price * (0.80)]} + {[Investment amount / Series A price] * [exit value of Series A]}

By: Yokum

Yokum — Thu, 01 Oct 2009 04:41:27 +0000

@prasad – same series.

By: Yokum

Yokum — Wed, 30 Sep 2009 22:41:27 +0000

@prasad – same series.

By: prasad

prasad — Wed, 30 Sep 2009 04:59:51 +0000

Hi Yokum,

if we go down the path of discount rather than warrant, will end up with additional shares at the point of conversion. Are those considered the same series of stock or would there have to be a different series given the price difference. Or should this be pretty straightforward?

By: Yokum

Yokum — Sun, 19 Jul 2009 04:51:22 +0000

@Mark B – Please go check with tax advisors. The issuance of the convertible note is likely income to the receiver. I'd probably paper it as a loan.

By: Mark B

Mark B — Wed, 24 Jun 2009 23:15:24 +0000

I have a company that I have been providing services to over several years to help it get started. I also own the company that has been receiving these services, but have never issue stock or debt on the balance sheet. I am about to go out for my first small round of funding (probably convertible notes), and want to issue a convertible note to my company that has been providing the services? Is this the best way to do this? I don't want to run afoul of tax laws, or from your advice, dept of corporations in CA. Both companies are CA corps.

By: Yokum

Yokum — Fri, 20 Mar 2009 05:08:14 +0000

@Manu – I personally prefer a conversion discount as it is cleaner (meaning there is no warrant overhang to worry about).