Lextree Simply the best software for managing legal entities and documents.
The Berkman Letter Practical analysis and commentary for business, law, and more.

Why do convertible note terms include both valuation caps and discounts?

0
stars
0
answers
1016
views

We are raising initial funds and interested investors have proposed a convertible note that includes a valuation cap that works as a maximum for the price at which their note would convert to equity as well as a discount rate that gives the investors a discount for their note conversion from the price of shares offered to other investors in a future funding round. Why are they asking for both when it seems that the discount rate gives them all the benefits that they need as early investors (favorable share pricing terms to any future investors)?