Convertible Note Calculator
Calculate conversion price, shares received, and ownership percentage from your convertible note terms including discount rate and valuation cap.
Quick Answer
Conversion Price = min(Cap Price, Discounted Price). A $100K note with 20% discount and $5M cap on a $10M round converts at the cap price, giving roughly 2% ownership instead of 1%.
Calculate Conversion
Enter your investment amount, discount rate, valuation cap, and next round valuation.
About This Tool
The Convertible Note Calculator helps founders, angel investors, and startup advisors quickly model how a convertible note will convert into equity during a future financing round. Convertible notes are one of the most common instruments for early-stage startup funding, yet the math behind conversion can be confusing, especially when both a discount rate and a valuation cap are in play.
How Convertible Notes Work
A convertible note is a loan that converts into equity instead of being repaid in cash. When an investor writes a $100,000 check as a convertible note, they are lending money to the startup with the expectation that the note will convert into shares at the next priced funding round (typically a Series A). The note includes terms that give the early investor a better price per share than later investors receive, compensating them for the higher risk of investing earlier. The two primary mechanisms for this price advantage are the discount rate and the valuation cap.
Discount Rate vs. Valuation Cap
The discount rate gives note holders a percentage reduction off the price per share in the next round. A 20% discount means if Series A investors pay $10 per share, the note holder pays $8. The valuation cap sets a maximum valuation at which the note converts, regardless of how high the actual round valuation is. If the cap is $5M but the Series A values the company at $20M, the note holder converts as though the company is worth $5M, receiving four times as many shares. When both terms exist, the investor gets whichever produces the lower conversion price (more shares). This is standard practice and always favors the note holder.
Why Conversion Math Matters
Understanding conversion math is critical for both founders and investors. Founders need to know how much dilution they are taking on, which directly affects their ownership stake and control. If a founder issues multiple convertible notes with aggressive caps, they may be surprised at how much equity they have given away when those notes convert. Investors need to understand their potential ownership to evaluate whether the deal is worth the risk. A $100K investment that converts to 0.5% ownership has very different return potential than one that converts to 5%.
Common Convertible Note Terms
Standard convertible notes include several key terms beyond the discount and cap. The interest rate (typically 2-8% annually) accrues and adds to the conversion amount. The maturity date (usually 18-24 months) is the deadline by which a qualifying event must occur. A qualified financing threshold defines the minimum round size that triggers automatic conversion. Some notes include a most favored nation (MFN) clause that gives the holder the benefit of better terms offered to later note holders. Understanding these terms together is essential for modeling accurate conversion scenarios.
Convertible Notes vs. SAFEs
Y Combinator introduced the Simple Agreement for Future Equity (SAFE) as an alternative to convertible notes. SAFEs are simpler because they are not debt instruments: they have no interest rate, no maturity date, and no repayment obligation. However, the conversion mechanics for discount rates and valuation caps work similarly. This calculator's core conversion logic applies equally to SAFEs, though the total amount converting may differ since SAFEs do not accrue interest.