Our fictional investor wants the same shares the next investor receives. It would prefer to pay less for each one. The phrase same shares has made the request sound modest.
The shaded passages are from our fictional note, not verbatim Cooley clauses. Comments explain the trade, suggest a counterproposal, and translate our imaginary investor’s incentives. Structural references: Cooley’s CC0 Series Seed form; the tougher selected economics and fictional commentary are ours. An ask is not an agreed change or a guarantee you will get it.
Part II issued 540,000 note shares at $1 while cash investors paid $2. If both receive preferred shares with a $2-per-share liquidation preference, the note's $540,000 converting balance acquires $1.08 million of stated preference.
That result depends on the assumed charter. A discounted note does not invariably receive it, and a preference is not a guaranteed payment.
The arithmetic
| Treatment | Shares | Preference/share | Stated preference |
|---|---|---|---|
| Same preferred series | 540,000 | $2.00 | $1,080,000 |
| Adjusted shadow series | 540,000 | $1.00 | $540,000 |
Swipe or scroll the table for all columns →
Illustrative arithmetic, not a forecast or transaction-specific advice. Definitions and exclusions appear in the specimen and accompanying text.
Multiply 540,000 note shares by the assumed $2 preference. The answer is $1.08 million. New cash investors' one million shares carry $2 million of preference on $2 million invested.
Actual payouts still depend on proceeds, senior claims, other preferences, participation, conversion elections, and the charter. The table compares the preference bases before applying any waterfall.
At Post Money Capital, equal treatment has been an extremely rewarding principle.
The shadow series counterproposal
Cooley's public note includes an optional shadow-series provision that ties specified price-linked rights to the conversion price.1 Our specimen intentionally leaves it out. Its valuation-cap guidance also discusses the mismatch and possible alternatives.3
An appropriately drafted shadow series can preserve the 540,000 shares while setting this example's preference at $1 per share, or $540,000 total. The ask corrects the preference base; it need not revoke the agreed ownership discount.
Check the other linked terms too. An anti-dilution calculation or dividend still pegged to the cash investors' original issue price may preserve a mismatch after you fix liquidation preference. Counsel needs the note and charter together.
More votes can mean a different coalition
If preferred votes with common on an as-converted basis, more shares can also mean more votes. Class votes, protective provisions, and major-investor thresholds can create other consequences.
Our note grants no current board seat or operating veto. On conversion, the holder signs the applicable financing documents and obtains the stock's rights. Ask what continuing rights those documents grant and whether thresholds measure dollars invested or discounted shares.
A shadow series can introduce class mechanics of its own. Do not solve the economic mismatch by casually inventing another blocking class.
Conversion needs a closing map
The schedule should name each instrument, principal, accrued interest, conversion price, shares, stock class, preference base, and continuing rights. Reconcile it to the charter and final capitalization.
Our specimen converts all interest and settles fractional shares in cash. Those details are not universal. The note's information covenant lasts while the note is outstanding; reporting after conversion needs a continuing basis in the new documents.
If the schedule cannot explain where every share came from, the closing dinner is early.
What the founder asks for
Request the draft charter, a complete conversion schedule, and exit examples with the actual preferences. Propose the shadow treatment before signing away the option to use it.
The investor's early risk can justify a better entry price. That does not settle whether the bargain also includes a larger claim ahead of common. If you accept both in exchange for something else, identify the exchange.
We offered the same shares. Nobody said they would arrive with the same arithmetic.
Same stock, larger first claim
Read the full clause and its qualifications ↗
Permit a shadow series that votes with the cash-investor series but bases preference, price-based anti-dilution, and relevant dividend amounts on the actual conversion price. Reconcile it to the charter.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley §2.1 includes an optional shadow-series provision. Its valuation-cap article also discusses adjusted preferred and other solutions. Our same-series example intentionally omits that protection. [1][3]