After watching the chairman’s video I am eager to get my start-up investment portfolio into Sharesight. How do we enter investments made via Convertible Notes both at purchase of note and then later at conversion into equity?
For my angel investments, I run a portfolio with Other investments which allows them to be tracked. For convertible notes you can’t know the share price in advance so there is no way to enter them unless you choose a share price. If there is a long stop date with a conversion price then I use that. Otherwise I estimate the share price and then change it when it converts.
Thanks for sharing.
What if we treat it like a property and enter it as a single share for the total amount, or a nominal $1 share price, then update upon conversion?
It seems the later would be a reasonable approximation of the reality since the note only has its face value and at conversion the discount, cap and coupon rate will all take effect.
For what it’s worth here’s what I figured out one can do. Noting it might be overkill for most scenarios and happy to have any errors pointed out.
Create a custom investment in the OTHER category. Suggest using ‘Note’ as part of the code, e.g. CompanyName.Note.OTHER.
Enter the note as an ordinary share buy for one share with the full value of the note as the share price.
Upon conversion create (if you don’t have one already) a custom investment for the same company in ordinary shares (or preference, as required), e.g. CompanyName.Ordinary.OTHER.
Use the Merge function to convert the note holding to the ordinary holding. Since it assumes 100% rollover relief the cost base should be unaffected. Although that might not be correct from a tax perspective, it does represent what has happened to your money. For the merge enter the number of shares issued for the principal of the note - not the shares issued for the interest/coupon rate, that’s next.
In the CompanyName.Ordinary.OTHER holding enter a buy transaction for the shares issued against the interest earned using the conversion price as the share price.
That’s it! Not really a lot of work but, maybe unnecessary for most people. I think, other than the cost base issue for tax, that this represents a fairly simple and accurate way of recording a debt investment in a start-up that does actually convert, such as happens with a convertible note or SAFE note. I guess if you started this process then choose to redeem the note then simply enter that as a sale transaction, or perhaps a split sale and dividend if you need to record the interest earned.