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.