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Scenario: Convertible loan conversion(s) + (equity) investments

This article explains how to simulate a financing round where you have to convert convertible loans and at the same time add new equity investments.

Before you start, check that the most recent cap table in Ledgy reflects the latest data. Scenario modeling takes into account the current cap table you have imported to Ledgy and builds the scenario on top of it. 

Go to Ownership>Scenarios and add your first scenario.

1. Set the pre or post-money valuation.

To switch from pre to post, click on the pre/post field.

2. Set the date.

This is important for calculating the interest of your convertibles if they have it.

3. Add the convertibles.

If you have any outstanding convertibles in your cap table, select in the Add drop-down: Trigger convertibles>From transactions.

If you're adding a convertible that doesn't exist yet, select New convertible.

Check that the conversion parameters and interest settings for convertibles are correct. Ledgy will calculate the share price based on these.

4. Add the investment(s).

Click Add and select Add investment
You can either choose an existing stakeholder or add a new stakeholder one by typing the name in the field and pressing Enter.

5. Results

Ledgy shows you these calculations:

  • pre/post-money valuation,
  • total round size,
  • issue price,
  • the number of issued shares.

Results-2From the image above, you can see that if we calculate:
pre-money(90M)+total round size(2M), it doesn't add up to the 91M post-money valuation.

That's because we have a convertible set to convert pre-round, which means that the pre-money valuation isn't 90M, but 90M – 1M (the convertible). You can change that in the Advanced Settings, by turning off the toggle for 'Convertibles only dilute existing shareholders'. This will trigger the convertible post-round.

Actual investment
You can also see that Ledgy calculates the actual investment amount. You might see this:

actualInvestment
Actual investment is the result of shares being integers. So the investment results in a certain number of shares, which are rounded. Multiplying these shares by the share price gives the actual investment. 

Calculation of the conversion parameters

issuePriceConvertible
You can see that Ledgy calculated the interest (using the specified date in the convertible as the start date and the scenario round's date as the end date).

You can also see that the issue price has a discount of 20.06%. This number tells you whether the calculation was done using the conversion parameter cap or discount.

6. The projected cap table

If you scroll down, you can see the projected cap table. Here you can explore the different views of the cap table, such as by groups, by stakeholders, fully-diluted, etc...

Errors

Could not find a solution to your input:

- This error may appear if the valuation is too low to calculate a valid share price for the convertible loan conversions.

The resulting share price is lower than the nominal value:

- This error appears if the valuation you set is too low, based on the existing amount of shares. Either change the valuation or go to Settings (in the sidebar) and adjust the nominal value, if you haven't yet.

Advanced settings

Scenario Settings

Rounding policy

Rounded share price vs share price without rounding

If you select the rounded share price, Ledgy will round the price to 2 decimals. If you don't want to round the share price, Ledgy will calculate with 10 decimals.
If you're comparing the results with your excel data, make sure you're using the same amount of decimals in both places.

Round the number of shares down 
If you select to always round the shares down, the number of shares will be rounded down, no matter the decimal. For example, 2.4 and 2.7 will both be rounded to 2. The setting in other words defines, if the actual investment is always lower than the committed investment.

Convertibles only dilute existing stakeholders

Toggle on
With this setting turned on, only the stakeholders involved in the cap table before the modeled round, will be diluted. For the new stakeholders to not get diluted, they have to receive more shares. They receive more shares because the share price is lower than if the toggle was turned off. The round's share price is calculated using fully-diluted shares from before the round and converted loans. Share price=pre-money valuation/(pre-round fully-diluted shares+converted loan shares)
Toggle off
With this setting, the "new" stakeholders will be diluted as well. The round's share price is calculated using only the fully-diluted share number from before the round. This means that the share price is higher than if the toggle is turned on. The direct result of that is that the new stakeholders receive fewer shares than if the toggle was turned on. Share price=pre-money valuation/pre-round fully-diluted shares