Let's say you want to set up a convertible loan for $100,000 that the company receives in December 2016 that will provide cash for the company until it has a major funding round of, say, $1,000,000 in July 2017. Furthermore, let's assume that you assume that the major round will sell shares at $1.00 per share but you will be offering a 20% discount to the investors who participate in the convertible note. Here is how to set it up:

First, set up the loan in Offtoa. Go to Assumptions/Financing/Loans. Add a new loan. Enter the loan details as follows:

• Loan Name: “Convertible note”
• Loan Amount: $100,000
• Origination Date: This is the date you expect the company to receive the loan money; in this case, December 2016
• Duration: Number of months expected between the loan origination date and the date of the next major investment round; in this case, 7 months
• Annual Interest Rate: 6% (or whatever you like)
• Monthly Payment: $0 (assuming company is not making payments on the loan)

Next, set up the conversion of the loan into an investment. Go to Assumptions/Financing/Investments/Investors. Add a new investment. Enter the investment details as follows:

• Investment Name: Series A (or whatever it is)
• Investment Amount: $103,552 (this is not just $100,000 because the note accumulated interest over the 7 months)
• Date of Round: This is the date you expect the company to receive the major investment round; in this case, July 2017
• Price per Share: $.80 (that's 20% less than the other investors will pay)
• Class: Preferred (or whatever it is)
• Rights Multiple: 1.0 (or whatever it is)
• Comments: Convertible Loan discounted

Finally, set up the actual investment round. Go to Assumptions/Financing/Investments/Investors. Add a new investment. Enter the investment details as follows:

• Investment Name: Series A (or whatever it is)
• Investment Amount: $1,000,000
• Date of Round: This is the date you expect the company to receive the major investment round; in this case, July 2017
• Price per Share: $1.00
• Class: Preferred (or whatever it is)
• Rights Multiple: 1.0 (or whatever it is)

If you do the above and then examine the monthly cash flow statement, you will see an infusion of $100,000 (from the loan) in cash in December 2016 and $900,000 (from the additional investment) in cash in July 2017. The balance sheet for July 2017 will show an increase in cash or cash equivalents ($900,000), a decrease in short term liabilities ($100,000) and an increase in shareholders' equity ($1,000,000).

Related Questions:

How to create a loan in Offtoa?

What is a convertible loan?