Convertible Note Conversion Calculator

What is a convertible note conversion calculator?

A convertible note conversion calculator models what happens when your outstanding convertible notes convert into preferred equity at a Series A qualified financing. Convertible notes are debt instruments that accrue interest (typically 4–8%), so the math is noticeably different from SAFEs — the conversion amount is principal plusaccrued interest, which means every month you spend between issuing a note and closing a round quietly costs founders additional dilution. This tool runs the full iterative dilution math, including MFN propagation, cap vs discount arbitration, and option pool refresh, across four different trigger events (qualified financing, maturity, acquisition, IPO).

Convertible note interest accrual: simple vs compounded, Act/365 vs 30/360

Almost every convertible note accrues simple interest, but a handful of institutional notes compound — and the day-count convention matters more than most founders realize. The convertible note interest accrual formula for simple interest is principal × (rate/100) × (days held / 365). For compound-annual, it is principal × ((1 + rate/100)^fraction − 1). At 8% over 18 months on a $500K principal, simple interest accrues about $60,000; compound-annual accrues about $62,000; compound-daily about $63,000. Act/365 counts actual days, 30/360 treats every month as 30 days — the difference is small but real over long notes. The calculator handles all three interest modes and both conventions.

Valuation caps vs discounts: how the calculator picks the winner

When a convertible note has both a valuation cap and a discount, the investor converts at whichever price is lower for them — it is always the better of the two, never both combined. The valuation cap sets a maximum implied valuation at conversion; the discount sets a minimum markdown off the round price. If the round prices above the cap, the cap binds ("cap triggered"). If the round prices below the cap but above the discounted price, the discount binds. The per-note cards in the tool show which constraint was active and the effective discount captured. Our convertible note valuation cap calculator supports cap-only, discount-only, and cap-and-discount elections with per-note overrides.

Qualified financing: when do notes actually convert?

A qualified financing is a priced equity round large enough to trigger automatic conversion of outstanding convertible notes — typically defined as a minimum investment amount stated in the note itself (commonly $3M or $5M). The qualified financing conversion price formula is the same as general conversion: principal plus accrued interest divided by the lower of cap-implied or discount-implied price. If your Series A does not meet the qualified threshold, notes typically do not auto-convert — they remain outstanding and the investor can elect to convert at maturity or demand repayment. The calculator flags non-qualifying rounds with a warning banner and shows the notes-remaining-outstanding scenario.

Iterative dilution: why multiple convertible notes need a solver

Multiple convertible notes create a circular dependency: each note's share count depends on the total fully diluted share count, which itself includes every other note's share count, which depends on the total. There is no closed-form algebraic solution; you have to iterate. The multiple convertible notes dilution mathruns a fixed-point solver with a convergence threshold of 0.0001%. Most stacks converge in 4–8 iterations; stacks with MFN clauses and mixed election types may take 10–15. The solver reports iteration count as a trust signal: if you see "not converged," the inputs are inconsistent.

Convertible note vs SAFE: which one dilutes founders more?

Convertible notes and SAFEs serve similar purposes but differ on two key axes. Convertible notes are debt: they accrue interest and have a maturity date. SAFEs are not debt, accrue no interest, and have no maturity. Over an 18-month period, a typical 4-note stack at 8% interest will dilute founders about 1–3 percentage points more than an equivalent SAFE stack purely due to accrued interest. The convertible vs safe founder dilution differenceis most visible when the close date slips: every additional month adds another 0.5–0.7% of accrued interest on the full stack. The "vs SAFE" compare button re-runs the calculator with interest zeroed so you can see the delta.

MFN clauses: propagation rules explained

A Most Favored Nation (MFN) clause entitles an earlier convertible note holder to inherit the most favorable terms (lowest cap, highest discount) of any later note the company signs. The tool's MFN engine sorts every note by issue date, then for each MFN holder scans all later notes to rewrite cap and discount to the most favorable combination found. The convertible note MFN clause calculator flags MFN-applied notes with a gold badge on the note card. When MFN triggers, the original cap effectively disappears — a silent re-price that most founders do not see coming until Series A pricing.

Modeling maturity, acquisition, and IPO trigger events

The calculator supports four distinct trigger events. Qualified financing is the standard Series A conversion. Maturity conversion applies a pre-agreed maturity price (typically the cap) and shows the cash-repayment alternative. Acquisition triggers the change-of-control provision (1×, 1.5×, or 2× principal plus interest is common), and the calculator shows both the cash payout and the equity outcome. IPO converts at the IPO price minus discount, or at cap if cap binds. Each event has its own math — and the tool's 4-event matrix in the Exec Deck lets you compare all four side-by-side.

Reading the convertible note calculator output: founder % and "which term won"

The hero number is founder ownership post-conversion — the single most important output. The per-note cards tell you which constraint (cap or discount) priced each note. Ideally you want most notes to hit their cap, because that means the cap is doing its job. The 6-dim report card grades your stack on Founder Dilution, Interest Drag, Cap Effectiveness, Discount Value, Maturity Risk, and Stack Complexity. The convertible note discount rate formulaused internally is roundPrice × (1 − discount/100). An effective discount ≥ 20% means the note investor captured meaningful value; below 8% means the cap or discount was never going to help them.

When a convertible note goes past maturity

If you hold notes past their maturity date, the investor can typically (1) demand cash repayment of principal plus accrued interest, (2) extend by written agreement, or (3) convert at the pre-agreed maturity price (often the cap). Most modern notes include auto-conversion language, but many older notes require affirmative action. The calculator flags any past-maturity note with a red banner and pulsing card border — convertible note past maturity is a legal emergency, not a paperwork issue. A convertible note 8 percent interest example: a $500K note at 8% held 26 months accrues about $87K simple interest, so a past-maturity investor has real leverage to demand repayment of $587K in cash on 30 days' notice.

Change of control multiplier and convertible note Act/365 vs 30/360 interest

Many convertible notes include a convertible note change of control multiplier — a 1×, 1.5×, or 2× payout on principal plus accrued interest if the company is acquired before conversion. The 2× multiplier is especially common on angel-stage notes and can materially boost investor returns on small exits. The convertible note act 365 vs 30 360 interest distinction matters most on long-held notes: Act/365 uses actual calendar days divided by 365; 30/360 treats every month as 30 days and every year as 360 days. Over a 24-month hold at 8%, the difference is typically under $500 on a $500K note — small, but real if you are modeling precise conversion price. The calculator lets you switch between conventions to match your term sheet exactly.