Convertible Note Calculator (Cap & Discount)
Calculate the conversion price for convertible notes using valuation cap, discount rate, accrued interest, and qualified financing terms. See shares received, ownership %, and whether cap or discount triggers — free, instant, founder-friendly.
How Convertible Notes Convert at Series A
A convertible note is short-term debt that converts to preferred equity at a future qualified financing (typically Series A). The conversion price is the LOWER of two calculations: (1) the discount price = Series A price × (1 - discount rate), and (2) the cap price = valuation cap ÷ Series A pre-money valuation × Series A price. Whichever produces fewer dollars per share gives the investor more shares — and that is the conversion price applied. Per the SEC convertible securities investor bulletin, the cap protects investors when the company performs better than expected (Series A valuation exceeds cap), while the discount rewards investors for taking early-stage risk regardless of where Series A prices.
Cap vs Discount — Which Triggers When?
The cap triggers when the Series A pre-money valuation exceeds the valuation cap. Example: $5M cap with Series A at $15M pre-money — the cap converts the note as if the company were valued at $5M, giving the investor 3x more shares than they would receive at Series A price. The discount triggers when Series A pre-money valuation × (1 - discount %) is less than the cap-implied price. Example: $20M cap with Series A at $4M pre-money and 20% discount — the discount price ($4M × 0.80 = $3.2M effective valuation) is much lower than the cap, so the discount governs. In aggressive up-rounds, the cap typically governs; in modest up-rounds or down-rounds, the discount governs.
Pre-Money vs Post-Money Cap Conventions
There are two conventions for valuation caps. Pre-money cap (older convention): the cap is applied before adding the Series A round amount, meaning the note holder takes dilution from the new investor. Post-money cap (Y Combinator SAFE post-money standard since 2018): the cap is applied after the Series A round, locking in the note holder's ownership percentage regardless of Series A round size. The post-money convention is now standard for new SAFEs but older convertible notes typically use pre-money. Confusing the two creates 5-15% ownership disputes — always specify which convention applies in the note documentation. Per YC SAFE documents, all post-2018 SAFEs use post-money caps. Last updated May 2026.
Common Convertible Note Pitfalls for Founders
Three founder mistakes ruin many cap tables. (1) Stacking caps — raising multiple convertible note rounds with different caps creates a complex stack where some notes convert at $3M cap, others at $8M cap, leading to surprise dilution at Series A. (2) Ignoring the discount + cap interaction — applying both can over-credit the investor. The standard is to use whichever produces a lower conversion price (more shares for the investor), NOT to multiply both. (3) Maturity date triggers — many notes give the holder the right to demand repayment if no qualified financing occurs within 18-24 months. Plan your fundraise to convert before maturity, or negotiate maturity extension upfront. Use this tool alongside our SAFE note dilution calculator to model the full cap table impact.
Frequently Asked Questions
How does a convertible note convert?
At a qualified financing (typically Series A), the note converts to preferred equity at the LOWER of (a) discount price = Series A price × (1 - discount), or (b) cap price = valuation cap ÷ Series A pre-money × Series A price. Lower price = more shares for the investor.
When does the cap trigger vs the discount?
The cap triggers when Series A pre-money valuation exceeds the cap (rewards investors in up-rounds). The discount triggers when Series A pre-money is moderate and the discount % produces a lower effective price than the cap (rewards investors regardless of valuation).
What is the difference between pre-money and post-money cap?
Pre-money cap = cap applied before adding new Series A money (note holder dilutes from new round). Post-money cap = cap applied after Series A round (note holder ownership is locked regardless of round size). YC standardized SAFEs to post-money in 2018 — this is now the prevailing convention.
Do convertible notes accrue interest?
Yes, typically 4-8% per year (5-6% standard). Interest accrues until conversion and converts alongside the principal. On a $250,000 note at 5% interest converting at 18 months, the conversion uses $250,000 + $18,750 = $268,750 of credit toward shares.
What happens if no Series A occurs by maturity?
Most notes give the investor the right to (a) demand cash repayment with accrued interest, (b) convert at a "down-round" valuation specified in the note, or (c) extend maturity by mutual agreement. Founders should negotiate auto-conversion at a fair valuation rather than mandatory cash repayment, as cash repayment often kills the company.
Can I have both a cap AND a discount on one note?
Yes — most modern convertible notes have both. The math: calculate the cap-implied conversion price AND the discount-implied conversion price, then use whichever is LOWER (giving more shares to the investor). Multiplying or stacking is incorrect — it would double-credit the investor.