How to use this convertible note calculator
- Enter today's cap table: founders' shares, options granted or promised, and the unissued shares in your option pool.
- Add each note with its principal, annual interest rate and the months until it converts. Add the valuation cap and discount if it has them, and say whether interest is simple or compounded.
- Add any SAFEs too. Notes and SAFEs often convert in the same round, and each one affects the others' share counts.
- Enter the priced round and read off each note's conversion price, shares and ownership, plus the full cap table after the round.
How a convertible note converts
A convertible note is a loan that turns into shares at your next priced round instead of being repaid. Three numbers decide how many shares the investor gets.
Conversion amount = principal + accrued interest
Conversion price = lowest of (cap ÷ pre-money fully diluted shares, round price × (1 − discount), round price)
Shares = conversion amount ÷ conversion price
With a pre-money cap, the fully diluted share count includes all shares, options and the option pool (including any pool increase for the round) but not the notes and SAFEs themselves. That's why several notes on the same cap don't dilute each other, and why the founders absorb all of them.
Convertible note interest: simple vs compound
Interest accrues from the day the note is signed until it converts:
Simple interest = principal × annual rate × years
Compound interest (annual) = principal × ((1 + annual rate)^years − 1)
On a $500,000 note at 6% that converts after 18 months, simple interest is $45,000 and annually compounded interest is $45,668. Your note says which applies. Either way, the interest converts with the principal.
Worked example: two notes converting in a seed round
The calculator above starts with this example. The company has 10,000,000 fully diluted shares. Note A is $500,000 at 6% simple interest with an $8M pre-money cap and a 20% discount, converting after 18 months. Note B is $250,000 at 8% with a 20% discount and no cap, converting after 12 months. The company then raises a $3M seed round at a $12M pre-money valuation with a 10% option pool afterwards.
- Conversion amounts: Note A converts $545,000 ($45,000 of interest) and Note B $270,000.
- Round price: $0.9914 per share, after 1,012,953 shares are added to the option pool.
- Note A compares its cap price, $8M ÷ 11,012,953 = $0.7264, with its discount price, $0.7932. The cap price is lower, so it gets 750,257 shares.
- Note B has no cap, so it converts at the discount price of $0.7932 into 340,414 shares.
| Shareholder | Shares | Ownership |
|---|---|---|
| Founders | 8,500,000 | 56.18% |
| Options granted | 1,000,000 | 6.61% |
| Available option pool | 1,512,953 | 10.00% |
| Note A | 750,257 | 4.96% |
| Note B | 340,414 | 2.25% |
| Seed investors | 3,025,906 | 20.00% |
Convertible note vs SAFE
| Convertible note | SAFE | |
|---|---|---|
| Legal form | Debt (a loan) | Contract for future equity, not debt |
| Interest | Accrues and usually converts | None |
| Maturity date | Yes | None |
| Valuation cap | Usually pre-money | Post-money on YC's standard form |
| Discount | Optional | Optional |
Both convert at the lowest of the cap, discount and round prices. Because of interest, a note converts into a few more shares than a SAFE with the same terms. The SAFE calculator explains post-money SAFE conversion in detail.
What happens when a convertible note matures
If there's no priced round before the maturity date, the note is due. What happens next depends on its terms: noteholders and the company often agree to extend the maturity date, some notes let the holders convert into shares at a price set in the note, and holders may be able to ask for the principal and interest back. Read your note's maturity clause, and keep the maturity date in mind when you plan your next raise.
How the calculator works
- Notes with a pre-money cap divide the cap by the fully diluted shares before the round, including the option pool increase and excluding notes and SAFEs. Notes vary here, so check your note's definition of fully diluted capitalization.
- Notes with a post-money cap, and post-money SAFEs, use Y Combinator's Company Capitalization, which counts the converting notes and SAFEs too.
- Interest uses the months you enter: simple, or compounded once a year. Day-count conventions in your note can change the interest by a few dollars.
- The option pool target is the unissued pool after the round as a share of all fully diluted shares, created in the pre-money.
- Share counts, the pool increase and the price are solved together to an exact answer; shares are shown rounded. The same engine reproduces the priced-round examples in Y Combinator's SAFE user guide.
- Not modeled: repayment or conversion at maturity, a sale of the company, and liquidation preferences.