SPEC 006 — Convertible Instruments

Field	Value
Status	DRAFT
Priority	P1 — Core Product
Backend	`equa-server/modules/persistence/src/captable/`
API	`equa-server/modules/api/src/endpoints/captable-endpoints.ts`
Frontend	`equa-web/src/modules/convertibles/`

Confluence source incorporated: “Convertible Note Fully Diluted Equation” — see section 6.1a below

1. Feature Purpose

Convertible Instruments manages pre-equity financing instruments — SAFEs (Simple Agreements for Future Equity), convertible notes, SAFTs (Simple Agreements for Future Tokens), and custom instruments. Investors provide capital via these instruments, which later convert into equity shares upon a qualifying event (funding round, acquisition, or maturity). The module tracks instrument terms, calculates accrued interest, models conversion scenarios, and executes conversions that create new shareholdings on the cap table.

2. Current State (Verified)

2.1 Backend

Component	Path
Entity definitions	`equa-server/modules/persistence/src/schema.ts`
Cap table reading	`equa-server/modules/persistence/src/captable/reading.ts`
Cap table writing	`equa-server/modules/persistence/src/captable/writing.ts`
API endpoints	`equa-server/modules/api/src/endpoints/captable-endpoints.ts`

2.2 Frontend

Component	Path
Convertibles module	`equa-web/src/modules/convertibles/`
Utility functions	`equa-web/src/modules/convertibles/utility.ts`
Type definitions	`equa-web/src/modules/convertibles/types.ts`
Cap table service	`equa-web/src/service/services/captable/`
Route paths	`equa-web/src/logic/paths.ts` lines 118–126

3. Data Model

3.1 ConvertibleInstruments

Core instrument terms stored as content-addressed records.

Column	Type	Constraints	Description
(hash)	Hash	PK (from HashedTable)	Content-addressed identifier
instrumentType	ConvertibleInstrumentType		Instrument classification (see enum below)
authorizedRaiseAmount	numeric		Maximum capital the instrument can raise
interestRate	numeric	nullable	Annual interest rate (decimal, e.g., 0.05 for 5%)
accrualFrequency	smallint	nullable	Interest compounding period (1=daily, 2=monthly, 3=annual)
maturityDate	date	nullable	Date the instrument matures
valuationMax	numeric	nullable	Valuation cap (upper bound for conversion price)
valuationMin	numeric	nullable	Valuation floor
conversionDiscount	numeric	nullable	Discount rate applied at conversion (e.g., 0.20 for 20%)
earlyExitMultiple	numeric	nullable	Multiple returned on early exit/acquisition
estimatedConversionPrice	numeric	nullable	Pre-calculated estimated price per share at conversion
qualifiedFinancingAmount	numeric	nullable	Minimum financing amount to trigger automatic conversion

Source: schema.ts lines 1501–1534

3.2 ConvertibleInstrumentType Enum

9 instrument types, each identified by a UUID constant (utility.ts lines 4–14):

Type	Description
`convertibleNote`	Standard convertible note with interest and maturity
`startupsConvertibleNote`	Startups.com variant convertible note
`ycConvertibleNote`	Y Combinator convertible note template
`preMoneySafe`	Pre-money SAFE (no valuation cap on existing shares)
`startupsConvertibleSecurity`	Startups.com convertible security
`ycvcSafe`	YC/VC SAFE template
`postMoneySafe`	Post-money SAFE (valuation cap includes the SAFE amount)
`saft`	Simple Agreement for Future Tokens
`custom`	User-defined instrument terms

3.3 AccrualFrequency Enum

Value	Meaning
1	Daily compounding
2	Monthly compounding
3	Annual compounding

Source: utility.ts lines 28–32

3.4 InstrumentConversions

Records when a convertible instrument converts to equity.

Column	Type	Constraints	Description
(hash)	Hash	PK (from HashedTable)	Content-addressed identifier
convertibleInstrument	Hash	FK → ConvertibleInstruments	Source instrument
shares	numeric		Total shares issued in conversion
valuation	numeric		Organization valuation used for conversion price

Source: schema.ts lines 1536–1546

3.5 NoteConversions

Per-note distribution details within a conversion event.

Column	Type	Constraints	Description
(hash)	Hash	PK (from HashedTable)	Content-addressed identifier
conversion	Hash	FK → InstrumentConversions	Parent conversion event
destination	Hash	FK → Holdings	Destination shareholding created
source	Hash	FK → Holdings	Source holding (the note)
sharesOwed	numeric		Calculated shares owed to this note holder
value	numeric		USD value of the note at conversion

Source: schema.ts lines 1548–1564

3.6 Repayments

Records when a convertible instrument is repaid instead of converted.

Column	Type	Constraints	Description
(hash)	Hash	PK (from HashedTable)	Content-addressed identifier
convertibleInstrument	Hash	FK → ConvertibleInstruments	Repaid instrument
issueDate	date		Date of repayment

Source: schema.ts lines 1566–1573

3.7 Holdings (Relationship)

Convertible instruments are tracked as Holdings with a convertibleInstrument field:

Column	Type	Description
convertibleInstrument	Hash	nullable, FK → ConvertibleInstruments

Source: schema.ts lines 1417–1498 (Holdings entity, convertibleInstrument field)

Relationships

4. API Endpoints

Convertible instruments are managed through the Holdings API (shared with other holding types on the cap table).

Method	Path	Auth Guard	Description
POST	`/holding`	canEditCapTable	Create holding with `convertibleInstrument` field
PUT	`/holding/:holding`	canEditCapTable	Update holding and instrument terms
PATCH	`/holding/:holding`	canEditCapTable	Partial update
DELETE	`/holding/:holding`	canEditCapTable	Delete holding
POST	`/holding/:holding/convert`	canEditCapTable	Execute instrument conversion
POST	`/holding/:holding/repay`	canEditCapTable	Record instrument repayment

Source: captable-endpoints.ts lines 429–442 (convert/repay), holdings CRUD throughout file

Request Schemas

// POST /holding (convertible-specific fields within NewHoldingRequest)
interface ConvertibleInstrumentRequest {
  accrualFrequency?: number;
  authorizedRaiseAmount: number;
  conversionDiscount?: number;
  earlyExitMultiple?: number;
  estimatedConversionPrice?: number;
  instrumentType: ConvertibleInstrumentType;
  interestRate?: number;
  maturityDate?: string;
  qualifiedFinancingAmount?: number;
  valuationMax?: number;
  valuationMin?: number;
}

// POST /holding/:holding/convert
interface NewConversionRequest {
  holding: Hash;
  valuation: number;
  distributions: DistributionRequest[];
}

5. Frontend Components

Pages

Component	File	Purpose
ListConvertibleInstrumentsPage	`pages/list-convertible-instruments.tsx`	Lists all instruments in a block
NewConvertibleInstrumentPage	`pages/new-convertible-instrument.tsx`	Create instrument form
EditConvertibleInstrumentPage	`pages/edit-convertible-instrument.tsx`	Edit instrument terms
ViewConvertibleInstrumentPage	`pages/view-convertible-instrument.tsx`	Instrument detail view with notes
NewConvertibleNotePage	`pages/new-convertible-note.tsx`	Issue a new note against an instrument
EditConvertibleNotePage	`pages/edit-convertible-note.tsx`	Edit note details
ConversionPage	`pages/conversion-page.tsx`	Execute conversion with valuation and share distribution

Components

Component	File	Purpose
ConvertibleInstrumentsForm	`components/convertible-instruments-form.tsx`	Shared create/edit form for instrument terms
ConvertibleNoteForm	`components/convertible-note-form.tsx`	Note issuance form (principle, owner, date)
InstrumentDetails	`components/instrument-details.tsx`	Read-only display of instrument terms and calculated values
ConversionForm	`components/conversion-form.tsx`	Conversion valuation input + per-note share distribution

Routes

Route	Component
`/organization/:org/capitalization/block/:block/convertible`	ListConvertibleInstrumentsPage
`/organization/:org/capitalization/block/:block/convertible/new`	NewConvertibleInstrumentPage
`/organization/:org/capitalization/block/:block/convertible/view/:holding`	ViewConvertibleInstrumentPage
`/organization/:org/capitalization/block/:block/convertible/view/:holding/edit`	EditConvertibleInstrumentPage
`/organization/:org/capitalization/block/:block/convertible/view/:holding/note/new`	NewConvertibleNotePage
`/organization/:org/capitalization/block/:block/convertible/view/:holding/note/:note/edit`	EditConvertibleNotePage
`/organization/:org/capitalization/block/:block/convertible/view/:holding/conversion`	ConversionPage

Source: paths.ts lines 118–126, routes.ts lines 689–715

Form Fields

ConvertibleInstrumentFormFields (17 fields, types.ts lines 3–21):

Field	Type	Description
instrumentType	ConvertibleInstrumentType	Selected instrument template
name	string	Display name
abbreviation	string	Short label
authorizedRaiseAmount	number	Max capital
interestRate	number	Annual rate
accrualFrequency	AccrualFrequency	Compounding period
maturityDate	Date	Maturity date
valuationMax	number	Valuation cap
valuationMin	number	Valuation floor
conversionDiscount	number	Discount percentage
earlyExitMultiple	number	Early exit return multiple
estimatedConversionPrice	number	Estimated share price
qualifiedFinancingAmount	number	Auto-conversion threshold
pricePerUnit	number	Price per unit
seniority	number	Liquidation priority
convertsTo	string	Target security type for conversion
approvalDocument	string	Authorization document reference

ConvertibleNoteFormFields (3 fields, types.ts lines 23–27):

Field	Type	Description
principle	number	Investment amount (USD)
owner	string	Note holder (member reference)
issueDate	Date	Date the note was issued

6. Business Rules and Validation

6.1 Interest Calculations

The module provides 17 calculation functions (utility.ts):

Function	Purpose
`calculateSimpleInterest(steps, principle, rate)`	Simple interest: `steps * principle * rate`
`calculateCompoundInterest(steps, principle, rate)`	Compound: `principle * (1 + rate)^steps - principle`
`getAccrualSteps(start, end, frequency)`	Count accrual periods between dates
`getInterestFromConvertible(instrument, issueDate, value, current?, total?)`	Full interest calculation using instrument terms
`optionalInterestFromConvertible(...)`	Null-safe wrapper for optional instrument data
`getSharePrice(usd, totalUnits, discount)`	Price per share: `usd / totalUnits * (1 - discount)`
`convertToShares(usdAmount, price)`	Shares: `usdAmount / price`
`getMaxShares({maxUsd, valuationMin, totalUnits, discount})`	Maximum shares at conversion
`getOrganizationTotalUnits(securities)`	Sum outstanding across all security types

6.1a Fully Diluted Equation (from Confluence KnowledgeBase)

Source: Confluence KnowledgeBase — Convertible Note Fully Diluted Equation (by Christopher Johnson, extracted from source code)

Inputs:

From Convertible Instrument: Accrual Frequency, Discount Rate, Interest Rate, Maturity Date (optional), Minimum Valuation
From Convertible Note: Issue Date, Principle
From Organization: Total Units

Step 1 — Calculate Price Per Share:

Base Price Per Share = Minimum Valuation / Total Units
Discount = Base Price Per Share * Discount Rate / 100
Price Per Share = Base Price Per Share - Discount

Step 2 — Calculate Interest:

End Date = Maturity Date (if specified), otherwise Today
If End Date is before Issue Date, Fully Diluted = 0
Accrual Steps calculation:
- Daily: number of days from Issue Date to End Date (not counting Issue Date)
- Monthly: days rounded down to the most recent day-of-month matching Issue Date
- Annual: days rounded down to the most recent matching day-of-month AND month
Interest = Principle * Accrual Steps * Interest Rate / 365 / 100

Step 3 — Final Calculation:

P&I = Principle + Interest
Fully Diluted = P&I / Price Per Share

6.2 Conversion Rules

User enters organization valuation at time of conversion
System calculates shares owed per note: note value (principle + accrued interest) divided by conversion price
Conversion price = min(valuation cap / total units, valuation / total units) * (1 - discount)
Per-note share distributions can be manually adjusted before execution
Conversion creates new Holdings (destination) linked back to source notes via NoteConversions
The InstrumentConversions record captures the total shares and valuation used

6.3 Validation

Rule	Enforcement
Valuation must be non-zero	Conversion form: `nonZeroCurrencyField` validator
Instrument type is required	Form validation
Authorized raise amount is required	Entity constraint (non-nullable numeric)
All content-addressed records are immutable	HashedTable base class — updates create new hash entries

6.4 Instrument Type Behavior

Different instrument types control which form fields are displayed (dynamic fields in utility.ts lines 200–206):

SAFEs: No interest rate, no maturity date, no accrual frequency
Convertible notes: Interest rate, accrual frequency, maturity date are active
Custom: All fields available

7. Acceptance Criteria

8. Risks and Edge Cases

Risk	Impact	Mitigation
Numeric precision loss in share calculations	Incorrect share counts	Use `numeric` (arbitrary precision) in DB; decimal library in frontend
No server-side validation in persistence layer	Invalid instrument data could be stored	Add validation at API request handler level before persistence calls
Conversion form allows manual share adjustment without total validation	Output shares may not equal calculated total	Add frontend validation that sum(distributions) equals expected total
Zero-interest instruments with accrual frequency set	Unnecessary calculation cycles	Skip interest calculation when `interestRate` is 0 or null
Multiple concurrent conversions on same instrument	Double-converted shares	Serialize conversion requests per instrument; check conversion status before executing
SAFE vs note field confusion	User enters interest rate on a SAFE	Dynamic field visibility per instrument type already handles this
Valuation cap below valuation floor	Contradictory terms	Validate `valuationMax >= valuationMin` in form

9. Dependencies

Dependency	Type	Status
003-Cap Table (Holdings, SecurityTypes)	Required before	DRAFT
012-Team Members and Roles (member references)	Required before	DRAFT
002-Organization Management	Required before	DRAFT

Platform Architecture

Compliance & Security

Feature Specifications

Releases

Developer Onboarding

Business

Reference & Templates

Convertible Instruments

SPEC 006 — Convertible Instruments

1. Feature Purpose

2. Current State (Verified)

2.1 Backend

2.2 Frontend

3. Data Model

3.1 ConvertibleInstruments

3.2 ConvertibleInstrumentType Enum

3.3 AccrualFrequency Enum

3.4 InstrumentConversions

3.5 NoteConversions

3.6 Repayments

3.7 Holdings (Relationship)

Relationships

4. API Endpoints

Request Schemas

5. Frontend Components

Pages

Components

Routes

Form Fields

6. Business Rules and Validation

6.1 Interest Calculations

6.1a Fully Diluted Equation (from Confluence KnowledgeBase)

6.2 Conversion Rules

6.3 Validation

6.4 Instrument Type Behavior

7. Acceptance Criteria

8. Risks and Edge Cases

9. Dependencies

​SPEC 006 — Convertible Instruments

​1. Feature Purpose

​2. Current State (Verified)

​2.1 Backend

​2.2 Frontend

​3. Data Model

​3.1 ConvertibleInstruments

​3.2 ConvertibleInstrumentType Enum

​3.3 AccrualFrequency Enum

​3.4 InstrumentConversions

​3.5 NoteConversions

​3.6 Repayments

​3.7 Holdings (Relationship)

​Relationships

​4. API Endpoints

​Request Schemas

​5. Frontend Components

​Pages

​Components

​Routes

​Form Fields

​6. Business Rules and Validation

​6.1 Interest Calculations

​6.1a Fully Diluted Equation (from Confluence KnowledgeBase)

​6.2 Conversion Rules

​6.3 Validation

​6.4 Instrument Type Behavior

​7. Acceptance Criteria

​8. Risks and Edge Cases

​9. Dependencies

SPEC 006 — Convertible Instruments

1. Feature Purpose

2. Current State (Verified)

2.1 Backend

2.2 Frontend

3. Data Model

3.1 ConvertibleInstruments

3.2 ConvertibleInstrumentType Enum

3.3 AccrualFrequency Enum

3.4 InstrumentConversions

3.5 NoteConversions

3.6 Repayments

3.7 Holdings (Relationship)

Relationships

4. API Endpoints

Request Schemas

5. Frontend Components

Pages

Components

Routes

Form Fields

6. Business Rules and Validation

6.1 Interest Calculations

6.1a Fully Diluted Equation (from Confluence KnowledgeBase)

6.2 Conversion Rules

6.3 Validation

6.4 Instrument Type Behavior

7. Acceptance Criteria

8. Risks and Edge Cases

9. Dependencies