Convertible Note Kalkulator

Structuring bridge financing for high-growth SaaS companies to extend runway prior to a Series B priced round.

Conducting pro-forma capitalization table modeling ahead of institutional Series A investment rounds.

Executing pre-seed seed-round syndications when a company's valuation cannot be accurately determined.

How does a convertible note impact our corporate balance sheet prior to conversion?

Until a qualified financing event triggers conversion, a convertible note is classified as a short-term or long-term liability under GAAP and IFRS. The principal amount is recorded as debt, and the interest must be accrued periodically on the balance sheet, increasing the liability over time. This differs fundamentally from a SAFE, which is typically recorded as equity or a derivative liability. Finance teams must track these accruals to ensure accurate financial reporting and to prepare for the eventual debt-to-equity swap.

Why do institutional investors sometimes insist on a convertible note over a SAFE?

Institutional investors, particularly traditional venture funds and family offices, often prefer convertible notes because of the legal protections inherent in debt instruments. Notes feature a maturity date and a legal right to repayment, which gives investors significant leverage to renegotiate terms if the startup fails to raise subsequent capital. Furthermore, certain regulatory frameworks or institutional fund mandates restrict investing in non-debt, non-equity instruments like SAFEs. The interest accrual also provides investors with a guaranteed yield that increases their final equity ownership upon conversion.

How do we calculate the dilutive impact of accrued interest on our cap table?

Accrued interest acts as a multiplier on dilution because it increases the total dollar amount converting into equity. To model this, calculate the simple or compound interest up to the projected closing date of the priced round, add it to the principal, and divide the total by the conversion price. For example, a $1,000,000 note accruing $100,000 in interest results in an additional $100,000 worth of shares being issued. This extra dilution directly reduces the founders' and existing shareholders' ownership percentages, making precise pro-forma modeling essential.

What strategic options do founders have when a note approaches its maturity date without a priced round?

When a note approaches maturity without a qualifying round, founders have three primary paths: negotiate an extension, execute a maturity conversion, or repay the debt. In the vast majority of cases, founders negotiate an extension of 12 to 18 months, which usually requires offering concessions such as a lower valuation cap or a higher interest rate. Some notes contain automatic conversion clauses that convert the debt into common stock at a predetermined valuation upon maturity. Cash repayment is rare, as it typically drains the startup's operational runway and can lead to insolvency.

How does the selection of simple vs. compound interest affect the final conversion equity?

The compounding frequency specified in the note agreement directly dictates the speed of interest accrual and subsequent dilution. Simple interest only accrues on the original principal, whereas compound interest (whether monthly, quarterly, or annually) accrues on both the principal and the previously accumulated interest. Over a typical 18-to-24-month note term, compound interest will yield a higher conversion balance than simple interest. Corporate finance analysts must carefully review the legal term sheet to ensure the calculator is configured with the correct interest structure.

What is the corporate finance rationale for combining both a valuation cap and a discount rate?

Combining a valuation cap and a discount rate provides comprehensive downside and upside protection for early-stage investors. The discount rate ensures that if the company raises its next round at a modest valuation, the noteholder still receives a price advantage (typically 15-20%) over new investors. Conversely, the valuation cap protects the investor in a high-growth scenario where the company's valuation skyrockets, ensuring their early risk is rewarded with a meaningful equity percentage. The conversion mechanics almost always dictate that the note converts at whichever mechanism yields the lower share price.

How are convertible notes treated during an early exit or acquisition scenario?

If the company is acquired before the note converts, the note's terms will dictate the payout structure, which typically offers investors a choice or a pre-negotiated multiplier. Common terms specify that noteholders receive either a cash repayment of their principal plus accrued interest, or a premium multiple (such as 1.5x to 2.0x of the principal), or the option to convert the note into common stock at the valuation cap immediately prior to the acquisition to participate in the acquisition proceeds. Corporate development teams must thoroughly analyze these change-of-control provisions during M&A negotiations.