I'm struggling to work out how the interest is 20%. Is the below...

I'm struggling to work out how the interest is 20%. Is the below correct?

The notes are issued at a discount of $0.10. This means the company is paying 10c for ever 90c received, which equates to 11.1%.

The company is then also paying 9c interest against every convertible note. This equates to 10% interest.

So in total the investor is receiving 21.1% interest?


My understanding is the interest is paid up front? So when they announce that they are raising $18m, they're really only raising $16.2m ($20m minus $2m discount and $1.8m interest).


The notes also expire in 12 months. So NET are only going to have access to this debt for a 12 month period before having the repay the face value. I assume they will cycle through the convertible notes repaying the face value at maturity with the next lot of convertible notes.


Let me know if I'm mistaken in regards to any of the above. This is the first time I've tried to wrap my head around how convertible notes work. Is this a common approach for start ups?