Convertible Note Calculator

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 investors run this

Most people's intuition for compounding is wrong — not because the math is hard, but because linear thinking doesn't account for curves. Running numbers through a calculator like this one is the cheapest way to recalibrate that intuition before making an irreversible decision about contribution rate, asset mix, or retirement age.

What this doesn't capture

Steady-rate math ignores real-world volatility. Actual returns are lumpy; sequence-of-returns risk matters most in drawdown; fees and taxes drag on compound growth; and behaviour changes in drawdowns can reduce outcomes below the projection. The number represents one scenario rather than a forecast.