Convertible Note Valuation Model
21
Determine the expected value of a convertible note at the next round given uncertainty in valuation, cap, and discount.
NOTEAbout This Model
## Determine the expected value of a convertible note at the next round given uncertainty in valuation, cap, and discount. This model estimates **Expected Note Value** based on uncertain inputs: Cap Valuation, Discount Rate, Next Round Valuation, Conversion Probability. Run the simulation to see the distribution of possible outcomes.
VARIABLENext Round Valuation
triangular(2.0e+6, 1.1e+7, 2.0e+7)
The pre-money valuation of the subsequent equity financing round.
next_round_valuation
VARIABLEDiscount Rate
beta(3.5, 16.5)
Standard discount rates for convertible notes range from 10% to 25%.
discount_rate
VARIABLECap Valuation
triangular(5.0e+6, 1.0e+7, 1.5e+7)
Valuation cap defined in the note terms, usually based on negotiation.
cap_valuation
VARIABLEConversion Probability
beta(16.5, 3.5)
Probability that the startup successfully reaches a qualifying financing round.
conversion_probability
FORMULADiscounted Valuation Price
next_round_valuation * (1 - discount_rate)
Price considering the discount from next round valuation.
discounted_valuation_price
FORMULAConversion Valuation Base
min(cap_valuation, discounted_valuation_price)
The actual conversion valuation is the lower of the cap or the discounted round price.
conversion_valuation_base
FORMULAExpected Note Value
cond(random > conversion_probability, 0, (note_face_value / conversion_valuation_base) * next_round_valuation)
Calculates the value of the note based on conversion logic, adjusting for probability of failure.
expected_note_value
OUTPUTExpected Note Value
expected_note_value
Expected value of the convertible note at conversion. Accounts for valuation cap, discount rate, and dilution uncertainty. Compare against the original investment to assess expected return.
CONSTANTNote Face Value
100000
Principal amount of the convertible note being valued.
note_face_value
What is Carlo?
Carlo is a visual tool for Monte Carlo simulation. Model uncertainty by dragging probability distributions, connecting them visually, and running thousands of scenarios instantly.