Convertible note calculator

A convertible note works like a SAFE at the moment of conversion — lower of the cap price or the discounted price wins — with one extra step first: interest has been accruing on the principal the whole time, and that larger amount is what actually converts.

Most convertible notes use simple interest rather than compound interest — it accrues linearly over time rather than compounding on itself. The full converting amount is principal plus this accrued interest.

Convertible note terms vary by deal, but a study of over 500 real note terms found an average discount rate of about 32.6%, with a median closer to 24.5% — meaningfully wider variation than the "standard 20%" figure many founders assume going in. Interest rates typically fall in the 2-8% annual range, and maturity is commonly set at 18-24 months from issuance.

These are market-orientation ranges, not targets to negotiate toward blindly — the right terms for a specific note depend on the company's stage, the investor's risk tolerance, and how quickly a priced round is actually expected.

The cap doesn't always win. Consider a smaller, earlier note: $200,000 at 5% interest for 12 months, accruing $10,000 in interest for a $210,000 converting amount. This note carries an $8,000,000 cap and a 20% discount, converting into a round priced at $7,000,000 pre-money against 5,000,000 shares (round price $1.40/share). Cap price: $8,000,000 ÷ 5,000,000 = $1.60/share. Discount price: $1.40 × (1 − 20%) = $1.12/share. This time the discount price is lower, so it sets conversion: $210,000 ÷ $1.12 = 187,500 shares.

The pattern here is exactly what the strategic framing predicts: this round priced relatively close to the cap valuation (a $7M pre-money round against an $8M cap), so the flat percentage discount ended up mattering more than the cap. In the first worked example, the round priced far above the cap ($20M pre-money against a $3M cap), so the cap dominated instead.

The cap price calculation — valuation cap divided by shares outstanding — needs to use the fully-diluted share count, meaning it should include any new option pool being created as part of the priced round, not just the narrower pre-round count. Getting this wrong is a common and costly mistake.

Take a $3,000,000 cap against a company with 8,000,000 shares outstanding before the round, but the priced round also creates a new 2,000,000-share option pool, bringing the fully-diluted count to 10,000,000. Using the narrower pre-pool count: cap price = $3,000,000 ÷ 8,000,000 = $0.375/share. Using the correct fully-diluted count: cap price = $3,000,000 ÷ 10,000,000 = $0.30/share — a 25% difference in price per share, and therefore a 25% difference in how many shares the note converts into. Using the wrong, narrower share count effectively hands the noteholder fewer shares than the note terms actually promise. Always confirm which share count basis a term sheet is using before finalizing a conversion calculation.

The cap tends to dominate when a company's valuation has grown substantially between the note and the priced round — it locks in a noteholder's effective price regardless of how high the new round prices, which is exactly the scenario in the first worked example above. The discount tends to matter more in smaller raises, or whenever the priced round lands close to the cap valuation, since in that case the flat percentage-off calculation can undercut the cap-based price, as shown in the second scenario. Founders negotiating note terms should think about which term is more likely to bind given their expected trajectory, rather than treating both as equally important in every deal.

The cap-and-discount conversion mechanics are identical between the two instruments — the difference is entirely in what happens before conversion. A SAFE has no interest and no maturity date; a convertible note accrues interest and typically matures on a set date, with legal consequences if a priced round hasn't happened by then. See the SAFE note calculator for the interest-free version of this same mechanic.

Companies frequently raise more than one note before a priced round, often from different investors on different terms — and all of them typically convert together at the same event, each according to its own cap, discount, and accrued interest. Consider two notes converting into the same round (10,000,000 shares outstanding, $20,000,000 pre-money, $2.00/share round price): Note A is $250,000 at 6% interest, outstanding 20 months, with a $3,000,000 cap and 20% discount — converting amount $275,000, cap price $0.30 wins, yielding 916,667 shares. Note B is a later, smaller $150,000 note at 6% interest, outstanding only 10 months, with a higher $5,000,000 cap and the same 20% discount — converting amount $157,500, cap price $0.50 wins, yielding 315,000 shares.

Combined, the two notes convert into 1,231,667 shares, or roughly 11.0% of the post-conversion cap table — with Note A alone accounting for about 8.2% and Note B about 2.8%, despite Note B's principal being 60% of Note A's, purely because Note A's lower cap and longer accrual period both push its share count higher. This is exactly why founders raising on notes need to model every outstanding note together before a priced round, not just check each one in isolation — the combined dilution from several notes stacking at once is often larger than founders expect going into the round.

Calculate your own conversion above, free, or compare it to a SAFE note on the same terms.