How do I convert a note?

Add a new Round 

Before you can convert a note, you must make sure you have added the new round into which the note will convert. So for example, if you purchased a note that is converting into the Series B round of financing, you must first add the Series B round to your Seraf account. For help adding a new round, click here or check out our Preferred Stock Checklist - Adding a Round.

Add new Transactions (For help, please refer to our Convertible Note Checklist - Adding a Conversion Transaction)

When a note converts into a new round of financing, there are typically two transactions that you need add to your account. The first transaction is a "Note Conversion" transaction. The second transaction is a "Interest Paid in Stock" transaction (or occasionally an "Interest Paid in Cash" transaction).

For the "Note Conversion" transaction, you should enter the date the note converted, then the number of shares you received as a direct result of your investment. If it's not clear from the investment documents or cap table, this can be calculated by taking the new round share price and applying the discount % to come up with your adjusted share price. Your note investment divided by the discounted share price will give you your share count. Make sure you select the new round from the drop down menu before hitting Save.

For the "Interest Paid in Stock" transaction, you will enter the date the note converted, then the number of shares your received as interest. Enter the same discounted share price you used in the note conversion transaction above, and select the new round from the drop down menu. 

If you need clarification on how these share counts are broken out, we recommend you contact the company in which you invested.

Please note that you can lump all of the shares you receive for a note conversion into one transaction, but this is not correct from a tax and accounting standpoint. Breaking the conversion into two transactions will give you and your advisors a more accurate breakdown of your portfolio.

View all of Seraf's Investment Checklists.

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