equity, discounts, convertible-noteThis has seemed very strange to me and I just can’t figure it out. I’ve been looking at https://equity.gust.com/convertible-notes for pricing of convertible notes.
And looking at other comparable tools. If an investor puts in $10,000 and they get a 20% discount, I would expect that their $10,000 to be valued at $10,000 * 1.2, or $12,000, but all the examples I see show that the investor would convert at $12,500 and I can’t seem to figure out why?
I see the same calculations here https://wefunder.com/post/17-convertible-notes
Where they suggest “A round investors wind up investing at a price of $1/share, your note will convert into equity at $0.80/share and you will receive 25% more shares for the same price.”
Because 12500*0.8=10000.
It’s not the 10000 that’s the basis for the discount percentage, it’s the original price.
Like in “this TV is reduced by 50% and now costs $100.” The TV costs $200 normally and is reduced by 50%.
It’s basically what @DonQuiKong said - bring it down to $100 investment with a 20% discount..
So, if you buy, say 100 units that have a price of $1/unit but you get them for a 20% discount you’ve only spent $80 to get them (you still have $20 of your original amount - which, at the discounted rate of $0.80/unit, you could buy an additional 25 units with your original amount, giving you 125 units in total, for $100)
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