TLDR:
As-converted basis refers to calculating a company’s capitalization assuming all convertible securities (preferred stock, options, warrants, convertible notes) have been converted into common shares.
Use in Practice
As-converted calculations are used to determine voting rights, ownership percentages, and liquidation distributions based on fully diluted ownership.
Why As-Converted Matters
The as-converted basis is critical for understanding true ownership dynamics in a company because the nominal share counts on a basic basis can be misleading when large amounts of preferred stock, options, and warrants remain unconverted. Investors, founders, and employees must understand as-converted ownership to accurately assess their economic interest in liquidation proceeds, their voting power in shareholder decisions, and the dilutive impact of new financing rounds. Term sheets and cap tables should always be analyzed on a fully diluted, as-converted basis to avoid surprises.