Day 17: How CCD Discount Impacts Investor Stake: Avoid Common Pitfalls

In financial modeling, many are familiar with the concepts of pre-money and post-money valuation—but fewer understand how discounted conversion through CCDs (Compulsorily Convertible Debentures) can impact investor stake calculations.

In this article, I’ll walk through a common issue: How do you correctly calculate your stake when your CCDs convert at a discount?

Illustration with CCD Discount Conversion

Let’s assume the following:

• Series A Investment via CCD: INR 12 crore
• Pre-money valuation for CCD conversion: INR 240 crore (after applying the discount)
• Pre-money valuation for Series B round: INR 300 crore
• New Investment (Series B): INR 60 crore

Step-by-Step Stake Calculation:

Step 1: Calculating Stake from CCD Conversion

Since your CCDs convert at a discounted valuation of INR 240 crore, your investment of INR 12 crore should be added to this amount to find the post-money valuation post-CCD conversion.

Post-money?valuation?after?Series?A?CCD?conversion=240+12=252?crore

Thus, your stake after conversion is:

12/252 = 4.76%

Step 2: Dilution from Series B Round

Series B investors enter at a pre-money valuation of INR 300 crore with a new investment of INR 60 crore.

Post-money?valuation?after?Series?B?round=300+60=360?crore

Your final diluted stake becomes:

12/360=3.33%

The Key Takeaway:

When modeling CCDs with discounts, investors need to:

• Understand that discounted conversion affects how much equity they own before new investors come in.
• Ensure the correct post-money valuation after CCD conversion includes their investment amount.
• Be prepared for dilution after subsequent rounds.

Getting the nuances right in financial models prevents costly miscalculations during funding rounds