Convertible Notes and SAFE: How to Add Them to Your Cap Table

How to Create a Convertible Note or a SAFE on Capboard

To create a Convertible Note  or a SAFE on Capboard, follow these steps:

1. Go to Ownership > Transactions > Add Transaction > Convertible note.

2. A modal will open with the following fields:

• Stakeholder: Select the person or entity lending money to the company. If they are not an existing stakeholder, you can create a new one.
• Investment: Enter the loan amount.
• Issue date: Specify the date when the loan agreement was signed.
• Maturity and discount: details of when ar at what conditions will the Convertible Note or SAFE will expire and/or be converted into equity. Convertible loans always have a maturity date which triggers either the conversion into equity or the loan payback.
• Floor: Enter the minimum valuation at which the note will convert.
• Cap: Set the maximum pre-money valuation at which the note will convert. If a discount is also defined, the note will convert using the valuation most favorable to the investor — either the cap (if it is lower than the valuation after applying the discount) or the valuation after the discount (if it is lower than the cap)
• Discount: Specify the percentage rebate on the valuation for conversion. If a cap is also set, the note will convert using the lower valuation — either the cap or the valuation after the discount — whichever provides the investor with a greater number of shares.
• Maturity date:  Indicate the specific date when the Convertible Note will expire or convert into equity.
• Interest: In some countries, convertible notes accrue interest. If this applies, you can configure it here. (Interest is uncommon in the U.S. or U.K.).
• Documents: upload the convertible note contract so it's available to the stakeholder.

How to Convert a Convertible Note or a SAFE into Shares

When a company wants to convert a Convertible Note or a SAFE into equity either because it has reached the maturity date or due to a funding round, Capboard facilitates the calculations. Here's how you can do it:

1. Go to Ownership > Transactions and find the Convertible note or SAFE you wish to convert. Use the filters to select "Convertible Loan" to easily locate the Convertible Note or SAFE you wish to convert.
2. Click on the three dots on the right side of the Convertible Note or SAFE transaction.
3. You can either:
   • Convert a specific loan by selecting "Convert into Shares" for that loan.
   • Convert all loans if multiple loans need to be converted due to a funding round by selecting "Convert all unconverted Loans".
   
   
4. Upong opening the conversion modal, tyou will see the preset terms of the loan as well as the conversion details, which can be edited by you. These include: 
• Date: day when the loan is being converted into shares.
• Pre-money valuation: The company's valuation used for the conversion. If a Cap is lower than the actual valuation, the conversion will use the Cap instead.
• Tax witholdings: The amount to withhold from interest earned (if applicable).
• Pre-money or Post-money SAFE or Loan: Specify whether the Convertible Note or SAFE is pre-money or post-money, as this will influence how the valuation and Cap are applied during the conversion process.
  
• Number of shares: The number of shares the loan will be converted into.
• Money to return: Since shares are indivisible, fractional shares are rounded down. The monetary value equivalent to the remaining fraction is returned to the lender.