Convertible Note Calculator
Convertible note conversion math.
Calculate convertible note conversion ownership at the next funding round from note size, valuation cap, and discount rate.
What this tool does
This calculator models how a convertible note converts into equity at a future funding round. It takes your note investment amount, the valuation cap, discount percentage, and the next round's valuation, then estimates the number of shares you receive and your resulting ownership percentage. The conversion price is determined by whichever is lower: the valuation cap or the discounted price from the next round. Your final ownership stake depends primarily on the investment size relative to the conversion valuation. A typical scenario involves an early-stage investor holding a convertible note that converts when the company raises a Series A or similar priced round. Note that this calculation assumes the conversion terms remain unchanged and does not account for dilution from future fundraising, option pools, or other share issuances that may affect your ownership over time. Results are for illustration only.
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Formula Used
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Disclaimer
Results are estimates for educational purposes only. They do not constitute financial advice. Consult a qualified professional before making financial decisions.
Convertible notes are short-term debt that converts to equity at the next priced funding round. Investor gets either: (1) discount on next round price (typically 20%), or (2) cap on conversion valuation (typically 5-10M for early stage), whichever is more favourable to investor. Defers valuation negotiation to when company has more traction.
Example: 100k convertible note at 5M cap, 20% discount. Next round at 15M valuation. Discount price = 15M × 0.80 = 12M. Cap = 5M. Cap wins (lower = better for investor). Conversion ownership = 100k / 5M = 2%. Without note, investor would have got 100k / 15M = 0.67%. The cap delivered 3x ownership boost.
Convertible note advantages: faster to close than priced rounds (no valuation negotiation), cheaper legal fees, founder retains control during early stage. Disadvantages: hidden dilution (founders often forget about outstanding notes), interest accrues, complex when multiple notes outstanding. SAFEs (Simple Agreement for Future Equity) replaced notes for many YC-style deals - similar economics without debt characteristics.
Run it with sensible defaults
Using note investment of 100,000, valuation cap of 5,000,000, discount of 20%, next round valuation of 15,000,000, the calculation works out to 2.00%. The defaults are meant as a starting point, not a recommendation.
The levers in this calculation
The inputs — Note Investment, Valuation Cap, Discount %, and Next Round Valuation — do not pull with equal force. Not every input has equal weight. Adjusting one input at a time toward extreme values shows which ones move the result most.
How the math works
Conversion = lower of cap or discounted next round price. Ownership = investment / conversion valuation.
Why run this
Running the numbers makes the trade-offs concrete. Small changes in the inputs can move the result more than intuition suggests, which is hard to judge without working it out.
What this doesn't capture
This is a simplified model that holds its assumptions constant. Real outcomes vary with market conditions, costs, taxes, and timing, so the figure is best read as one scenario rather than a forecast.
£100,000 note, £5,000,000 cap, 20% discount, £15,000,000 round = 2.00%.
Inputs
This example uses typical values for illustration. Adjust the inputs above to match a specific situation and see how the result changes.
Sources & Methodology
Methodology
The calculator computes the conversion price by taking the lower of two values: the valuation cap and the next round valuation adjusted by the discount rate. Specifically, it applies the discount percentage to the next round valuation, then selects whichever results in a lower per-share price. The investor's resulting ownership stake is derived by dividing their investment amount by this conversion price. The model assumes a straightforward conversion mechanic without modelling dilution from additional instruments, liquidation preferences, pro-rata rights, or post-conversion share counts. It treats the discount and cap as fixed terms and does not account for timing, probability of conversion, or variations in actual funding round outcomes.
References
Frequently Asked Questions
Cap vs discount - which matters?
Convertible note vs SAFE?
Maturity date concern?
Multiple notes - what happens?
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