Convertible Note Calculator
Model how a convertible note converts at a priced round. Enter your principal, interest rate, discount, and valuation cap to see the noteholder's ownership percentage and effective share price.
Note terms
Priced round at conversion
Conversion outcome
Noteholder ownership at conversion
5.2%
Converts via valuation cap - 33.3% effective discount
Total owed at conversion
$545K
Principal + $45K interest
Conversion price per share
$0.8000
vs $1.2000 round price
Shares received
681,250
Priced round post-money
$15.00M
Conversion price comparison
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Start Free TrialHow convertible notes work
A convertible note is a loan that converts into equity at a future priced round. The investor lends money today, and when you raise your next round, the debt - plus accrued interest - converts into shares at a discounted price. Convertible notes were the dominant early-stage instrument before SAFEs became standard, and they are still widely used, particularly by investors who prefer debt structures for tax or accounting reasons.
The key difference from a SAFE is interest. A convertible note accrues interest over time, typically 5-8% per annum, which increases the total amount that converts into equity. A $500K note at 6% over 18 months converts as if it were $545K - the interest accrues to the investor's benefit. This makes the hold period a real variable in the economics, unlike a SAFE where time does not change the conversion amount.
Discount vs cap: which applies?
When a convertible note has both a discount and a valuation cap, the noteholder converts at whichever gives them the lower price per share - meaning more shares. If the priced round values the company above the cap, the cap applies. If the round values it below the cap's implied price per share, the discount applies. This calculator shows which mechanism is in effect for your inputs.
Convertible note vs SAFE
SAFEs (Simple Agreement for Future Equity) are the modern alternative to convertible notes. SAFEs carry no interest, no maturity date, and no debt on your balance sheet. For most early-stage startups, a post-money SAFE is simpler and more founder-friendly. Convertible notes make more sense when an investor specifically requires a debt instrument, or when you want the discipline of a maturity date to force a pricing decision.
Maturity date risk
Convertible notes have a maturity date - typically 18 to 24 months - at which point the debt becomes due if no priced round has occurred. In practice, investors rarely call the note; they extend or negotiate conversion. But it creates leverage the investor can use if the company is struggling. SAFEs avoid this entirely. If you are raising a convertible note, negotiate the longest reasonable maturity date and an auto-conversion provision at maturity.
Frequently asked questions
- What is a convertible note in startup fundraising?
- A convertible note is a short-term loan that automatically converts into equity when the startup raises a priced round. The investor lends money now - receiving a promissory note - and gets repaid in shares rather than cash. The conversion price is typically discounted from the priced round to compensate the investor for taking early risk. Convertible notes are common at pre-seed and seed stage, though post-money SAFEs have largely replaced them in the US market.
- What is a typical convertible note interest rate?
- Most convertible notes carry interest rates between 5% and 8% per annum. The IRS minimum applicable federal rate sets a floor below which interest becomes imputed income. Some notes are structured at the AFR minimum (typically 2-4%) to minimise the economic impact of interest. Interest usually accrues rather than being paid in cash, and converts to equity alongside the principal at the priced round.
- What is a convertible note valuation cap?
- A valuation cap sets a maximum conversion price regardless of the priced round valuation. If you raise at a $20M pre-money valuation but the note has a $8M cap, the noteholder converts as if the company were valued at $8M - getting significantly more shares per dollar invested. The cap protects early investors from being under-rewarded if the company's value grows substantially before the priced round. It is standard practice to include a cap on any convertible note.
- How does a convertible note convert at a Series A?
- At the Series A, the outstanding principal plus accrued interest converts into Series A preferred shares. The price per share is determined by whichever is lower: the Series A price discounted by the conversion discount (e.g., 20% off), or the Series A price implied by the valuation cap (cap divided by shares outstanding). The noteholder receives shares at that price, giving them a larger ownership stake than investors paying the full Series A price.
- Should I raise a convertible note or a SAFE?
- For most founders raising pre-seed or seed in the US, a post-money SAFE is simpler and more founder-friendly. SAFEs carry no interest, no maturity date, and are not debt. They also have a well-understood legal standard (YC's standard documents) and are faster to close. Convertible notes make sense when an investor specifically requires a debt structure, when you are raising outside the US where SAFEs are less common, or when you want a maturity date to create a forcing function for your next round.
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