When a note converts into a round of equity, you can record the conversion in Seraf by following the below steps.
To record a Note Conversion:
- Go to Current Investments by Round or go to the Investment tab within the company profile to see the name of the existing note round and the amount .
- Add a round for the stock series into which the note converted, if you haven't already done so. For example, if a note converted into Series A, then add the Series A round, including the date and share price of the round when it closed.
- Add a transaction for the note conversion.
- Select the Investor / Investment Account.
- Select the Company.
- Select the Round of Investment (the original note round which is converting).
- Select "Note Conversion" for the Transaction Type.
- Enter the Date the note converted.
- Enter the Number of Shares into which the note converted. If it's not clear from the company's investment documents or cap table, this can be calculated by taking the stock round's share price and applying the Discount % to obtain your adjusted share price. Then divide the amount of your note by the discounted share price to get your share count.
- If only part of the note converted, then enter the Principal Amount Converted, otherwise leave blank and the system will assume that the whole note converted.
- Select the stock round into which the note converted as the New Round.
- Enter the Share Certificate #, if you'd like.
- Indicate if the investment is 1244 Qualified.
- If your note has been entirely converted, then check the Exit Transaction box. If your note has been only partially converted, do not check the box. (Checking the box indicates that the round itself has been exited, since the cost basis and holding convert over to the new equity round.)
- Enter a Memo with any important notes related to the Transaction.
- Save your entry.
- Go to Current Investments by Round or go to the Investment tab within the company profile to verify that your note has been converted to the stock round. The cost basis of the note should show under the equity round along with the new shares. Enterprise accounts will need to update calculations to see the results.
Notes about converting notes: For more information about the note to be converted, click the convertible note round name to see further details recorded. If you invest under different investment accounts, then check the transactions under the Transactions tab within the round or company profiles to see under which investment account each note was made.
Enterprise account holders can check the Investors tab and/or the Transactions tab to see the notes purchased by your investors and the associated investment accounts. From there, you can easily export the data to then use in part with the import template or you can use the Bulk Transactions tool to make multiple entries all at once to expedite the process.
Keep in mind that if you have multiple notes across multiple rounds, you'll need to create a transaction for each of the rounds you hold. Similarly, if you invest under multiple entities, you'll need to record a transaction for each entity that has a holding. The best spot to see a summary of your holdings for a particular company is the Investment tab within the company profile.
In addition to adding a "Note Conversion" transaction, you might like to add an "Interest Paid in Stock" transaction, if you'd like to keep them separate for tax and accounting purposes.
Learn how to record Interest paid in cash or paid in stock.
Please refer to our Convertible Note Checklist - Adding a Conversion Transaction for additional information.