Question

You have an idea for a company, but you need 30,000 to get started. Your aunt agrees to give you the 30k but as a SAFE that converts to preferred stock with a 20% discount and a 1.5 M CAP. The SAFE converts at the first priced round of equity funding.

The first round of financing is 1,000,000 at 2$ per share with the investor purchasing 28% of the company.

How many shares will your aunt have in your company after the first priced financing round? (round up/down to nearest share)

Answer 1

The first round of financing is 1,000,000 at 2$ per share with the investor purchasing 28% of the company.

This implies a  pre-money valuation of $2M/ 28% = 7,142,857.14

IF we apply the discount, the price per share would be $1.6 i.e. ($2 * 80%)

IF we apply the cap, the price per share would be $0.42/share ($2.00 times ($1.5M cap divided by $7.14M pre-money valuation))

THUS the cap would apply and the note would convert at $0.42/share which gives 71,429 shares to the aunt in the company after the first priced financing round.