Am I right then that the discount is to calculate the equity % based on a future Series A valuation.
if so in the scenrio's you posted above what is the new Equity % for the angel.
Looks like it is 20% once it crosses $5m cap as inferred in the article.
It seems like either the cap xor the discount applies (investors' option), so anything over $6.25MM valuation, the cap would apply and anything under that the discount would apply.
It's too late for me to edit the GP post, so I'll try to correct it here:
At a $5MM priced round, the discount would apply and the investor's note would convert $1MM at a $4MM valuation (25%). I believe that conversion is done pre-money, which means the angel is diluted (like all shareholders) from their initial 25% by the addition of the new money. (None of my angel investments have [yet] raised a priced round, so I haven't gone through this process, though I obviously hope to... :) )
If someone else invests $1MM at $5MM pre-money valuation, all prior investors are diluted by 16.6667%. (Someone who held 10% of $5MM pre-money company will hold 8.333% of a $6MM company post-money. Either way, their position is worth $500K.)
So, to know the angel's ownership in the scenario, you need to know how much dilution happened due to the new money, meaning you need to know not just the pre-money valuation, but also the amount of new investment money. In any scenario where the discount applies, the angel's position will be worth $1MM. In any scenario where the cap is better than the discount, the angel's position will be worth more than $1MM.