About the Convertible Note Calculator
This convertible note calculator shows what a convertible note turns into when the company raises its next priced equity round. Enter the note principal, interest rate and how long it has been outstanding, the valuation cap and discount from the note, and the terms of the new round, and it returns the accrued interest, the conversion price, the number of shares the noteholder receives and their resulting ownership.
It is built for founders modelling how notes will dilute them, and for angel investors checking what their note is worth. The calculator compares the round price, the discounted price and the cap price and applies whichever is lowest — the standard “better of cap or discount” treatment — then tells you which term actually drove the conversion.
For simplicity the cap price is the valuation cap divided by the fully diluted pre-money shares, and the new investors buy at the round price. Real note documents differ in what the cap capitalisation includes (for example, the option pool or other converting notes), so treat this as an estimate and confirm against your legal documents.
With the default inputs, the shares issued to noteholder is 681,250. Change any value above to recalculate instantly.
How to use the convertible note calculator
- 1Enter the note principal, interest rate and months until the priced round.
- 2Enter the valuation cap and discount from the note terms.
- 3Enter the priced round’s pre-money valuation and fully diluted pre-money shares.
- 4Enter the new money being raised to see post-round ownership.
- 5Check which term set the conversion price and how many shares are issued.
Formula and method
A convertible note is a loan that converts into equity at the next priced round. Interest usually accrues as simple interest and converts along with the principal rather than being paid in cash, so the amount converting is principal × (1 + annual rate × years). Choose annual compounding if your note specifies it.
The noteholder gets the better of two protections: the discount (a percentage off the price new investors pay) and the valuation cap (a maximum valuation at which the note converts). The calculator works out the round price, the discounted price and the cap price per share and uses the lowest. Shares are rounded down to a whole number, and ownership is shares ÷ (pre-money shares + note shares + new investor shares).
- r
- Annual interest rate on the note
- t
- Years between issue and conversion
- Pre-money shares
- Fully diluted shares before the round and before the note converts
Worked examples
$500k note, $8M cap, 20% discount, $12M round
After 18 months at 6% simple interest the note is worth $545,000. The round prices shares at $1.20; the 20% discount gives $0.96, but the $8M cap gives $0.80, so the cap wins. $545,000 ÷ $0.80 = 681,250 shares, worth $817,500 at the round price.
Lower-priced round where the discount wins
At a $7M pre-money the round price is $0.70, below the $0.80 cap price, so the cap no longer helps. The 20% discount gives $0.56 per share and the note converts into about 973,214 shares.
Uncapped note with annual compounding
Two years at 8% compounded annually turns $250,000 into $291,600. With no cap, the note converts at a 15% discount to the $2.00 round price, or $1.70, giving 171,529 shares.
Frequently asked questions
How does a convertible note convert?+
When the company closes a qualifying priced round, the principal plus accrued interest is divided by the conversion price to give a number of shares. The conversion price is the lower of the round price reduced by the discount and the price implied by the valuation cap.
What is a valuation cap?+
A valuation cap sets the maximum company valuation at which the note converts. If the priced round is above the cap, the noteholder converts as if the company were valued at the cap, receiving more shares than new investors get for the same money.
What is a typical convertible note discount?+
Discounts of 10–25% are common, with 20% frequently used. The discount rewards early investors for taking more risk than the investors who come in at the priced round.
Does interest on a convertible note get paid in cash?+
Usually not. Interest accrues and converts into shares together with the principal. Only if the note reaches maturity without converting might it be repaid, extended or converted on other terms set out in the note.
What is the difference between a convertible note and a SAFE?+
A convertible note is debt: it has an interest rate and a maturity date. A SAFE is not debt, has no interest or maturity, and simply converts into equity at a future round using a cap and/or discount.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.