Series A Cap Table Modeling and Convertible Notes

A Series A cap table is used to show the effect on the percentage ownership of a business following the introduction of Series A investment. Typically when a Series A funding round is undertaken it will also trigger the conversion of convertible loan notes into equity shares in the business and this also needs to be reflected in the Series A cap table.


The Series A funding round is normally the first round of venture capital finance following the introduction of pre-seed capital from family and friends and seed investment from angel investors. It is used among other things to hire additional employees, scale distribution, improve market research, optimize the user base, provide additional customer support, and further innovate and improve the product.

Typically a business seeking Series A venture capital funding has an established team of key personnel, a working business model and is able to demonstrate traction. While the business at this stage might have minimal revenue or cash flow and is unlikely to be profitable, it should have a substantial user base and be able to demonstrate that it is capable of growing rapidly and has the ability to generate long term profits.

Series A Cap Table Example

Suppose a business has the seed investors cap table shown below following the introduction of funding by angel investors.

Pre-Series A cap table
Angel investors340,00020.00
Pre-seed investors140,0008.24
Options pool220,00012.94

The creation of this cap table prior to Series A investment is more fully discussed in our post on the angel investors cap table for startups.

Suppose now that the business is seeking a Series A investment of 2,251,200 to fund the development and finalization of its product, carry out market research and scale its distribution network.

The business has found Series A investors who are prepared to provide the necessary finance at an agreed pre-money valuation of 6,300,000, but before investing they require an increase in the stock options pool of 175,000 options to enable the business to recruit and incentivize key personnel required to implement the business plan.

In addition the business had already issued convertible loan notes for 100,000 one year ago. The loan notes have an interest rate of 7.52% and offer a 20% discount and a 5,500,000 valuation cap on conversion. Further details on these terms can be found in our convertible loan note post.

Calculating the Series A Share Price and the Options Pool

The first step in producing the Series A cap table is to calculate the share price at which the Series A investors will be able to buy shares.

Based on the information above the share price is calculated as follows.

Current shares and options = 1,700,000
Stock options increase = 175,000
Total shares and options = 1,875,000
Pre-money valuation = 6,300,000
Share price = Pre-money valuation / Total shares and options
Share price = 6,300,000 / 1,875,000 = 3.36

The share price for Series A investors is 3.36

Without the increase in the options pool the share price would have been 3.71 (6,300,000/1,700,000). The effect of increasing the options pool is to reduce the share price prior to investment to 3.36 thereby increasing the number of shares the investors receive for their investment.

The options pool now holds 395,000 (220,000 + 175,000) options. The effect of the granting of stock options is more fully discussed in our post on stock option pools.

Convertible Loan Note Conversion

The next step is to calculate how many shares the convertible loan note holders get on conversion.

Loan Note Balance

The loan note was issued one year ago for 100,000 at an interest rate of 7.52%. The balance on the loan note at conversion will have increased due to the accumulation of interest over the year and is calculated as follows.

Principal = 100,000
Rate = 7.52%
Period = 1 year
Interest = Principal x Rate x Period
Interest = 100,000 x 7.52% x 1 = 7,520
Loan note balance = Principal + Interest
Loan note balance = 100,000 + 7,520 = 107,520

Conversion Value

Since the new investment triggered the event the conversion takes place at the Series A share price calculated above at 3.36. However the terms of the loan notes have a valuation cap of 5,500,000 and a discount of 20%. This means that the loan note holders receive a discount on the Series A share price.

The choice of whether to use the valuation cap (5,500,000) or the discount (20%) depends on which is most beneficial for the loan note holder. To compare the two the valuation cap is converted into an effective discount rate as follows.

Valuation cap = 5,500,000
Pre-money valuation 6,300,000
Effective discount rate = 1 - Valuation cap/Pre-money valuation
Effective discount rate = 1 - 5,500,000/6,300,000 = 12.7%

Since a higher discount rate benefits the loan note holder, the rate of 20% included in the terms is used instead of the effective rate (12.7%) produced by the valuation cap.

Allowing for the 20% discount the loan note conversion value is now calculated as follows.

Discount = 20%
Loan note balance = 107,520
Conversion value = Conversion amount / (1 - Discount %)
Conversion value = 107,520 / (1 - 20%) = 134,400

Further information on the conversion value is available in our post on convertible loan notes and by using our convertible loan note calculator.

Number of Shares

The conversion value of 134,400 is now converted into shares at the Series A share price of 3.36.

The number of shares is calculated as follows.

Conversion value = 134,400
Share price - 3.36
Number shares = Conversion value / Share price
Number shares = 134,400 / 3.36 = 40,000

The loan note holders will receive 40,000 shares as part of the funding round which needs to be included in the final Series A cap table.

Series A Investors Shares

The Series A investors invest 2,251,200 at the share price of 3.36 calculated above. The number of shares due to the investors in return for their investment is calculated as follows.

Series A investment = 2,251,200
Share price = 3.36
Number of shares = Investment / Share price
Number of shares = 2,251,200 / 3.36 = 670,000

The Series A investors receive 670,000 shares in return for their investment.

Pre and Post Money Valuation

The post-money valuation for the business is simply the pre-money valuation plus the new investment.

post money valuation series A cap table

The table below summarizes the pre-money and post-money valuations and shows the effect of increasing the options pool, converting the loan note, and issuing shares to the Series A investors.

Series A cap table: Pre-money and post-money valuations
Pre-seed investors140,000
Options pool395,000
Angel investment340,000
Pre-money valuation1,875,0006,300,000
Convertible note holder40,000134,400
Series A investment670,0002,251,200
Post-money valuation2,585,0008,685,600

In this example the pre-money valuation is 6,300,000 which together with the investment of 2,251,200 and the valuation placed on the convertible notes of 134,400 gives a post-money valuation of 8,685,600.

The total number of shares and options is now 2,585,000 and the Series A cap table is set out as follows.

Series A cap table
Series A investors670,00025.92
Convertible note holder40,0001.55
Angel investors340,00013.15
Pre-seed investors140,0005.42
Options pool395,00015.28

The series A cap table shows that for their 2,251,200 investment the investors receive 670,000 shares representing 25.92% of the total shares and options. In addition the options pool now contains 395,000 stock options equivalent to 15.28% of the total, and the convertible note holders hold 40,000 shares representing 1.55% of the total.

Founders are Diluted

The effect of obtaining Series A funding and increasing the options pool is to dilute the founders.

After the Series A investment the number of shares held by the founders is still 950,000, however, the total number of shares and stock options is now 2,585,000 and therefore the percentage ownership of the founders reduces as shown in the table below.

Founders are diluted
Holder% Before% After
Founders shareholding950,000950,000
Total shares and options1,700,0002,585,000
% Ownership55.88%36.75%

The founders who previously held 55.88% of the business are diluted and now hold only 36.75%.

Likewise the team and other investors are also diluted as shown in the table below.

Dilution following Series A investment
Holder% Before% After
Pre-seed investors8.245.42
Options pool12.9415.28
Angel investors20.0013.15
Series A investors25.92
Convertible note holder1.55

Series A Cap Table and Financial Projections

In the above example the Series A investment was 2,251,200. The amount represents additional equity for the business and needs to be entered in the financial projections template as new capital in the cash flow.

When producing financial projections it is recommended that the amount of equity capital needed to fund the business is determined first using the financial projections template.

The Series A cap table should then be drawn up to show how the necessary equity capital will be provided. In any event the equity shown in the financial projections template should always agree with that shown on the Series A cap table.

The convertible loan note is initially included as either opening balance sheet debt or new debt. On conversion the debt is eliminated and entered as new capital to agree with the Series A cap table.

The granting of stock options to key personnel is a method of compensating them for providing their services and usually creates an expense for the business. The expense is the number of options granted multiplied by the fair value of each option at the date of grant, and is included in the financial projections template income statement as an expense allocated over the vesting period of the options.


It is important to understand the effect on the fully diluted Series A cap table of obtaining the new investment, increasing the stock options pool, and of converting the loan note.

Series A investors usually require the options pool to be created prior to their investment to ensure they are not diluted. The effect of the options pool is to reduce the share price prior to investment and to increase the number of shares issued to the Series A investors.

Each time the business seeks outside investment or increases the size of the options pool the founders are diluted and the percentage of the business they own reduced.

Last modified August 13th, 2019 by Michael Brown

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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