Convertible conversion
Some early investors hand over money without agreeing a share price for it. The price gets decided later. Put in what they invested and on what terms, and you see how many shares they end up with.
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Raising money normally means agreeing what a share is worth. That takes time and lawyers, so very early investors often skip it: they hand over the money now and the share price is settled at the next proper round, called a priced round. In exchange for going first they get one of two sweeteners, or both. A valuation cap puts a ceiling on the company value used to work out their price. A discount takes a set percentage off whatever the next round pays. With both, they get whichever gives the cheaper share price.
The difference between a pre-money and a post-money SAFE is the single most consequential thing on the instrument, and it is nearly invisible on the page. A post-money SAFE fixes the holder's percentage, which means later SAFEs dilute you and not them. A pre-money SAFE does not.
Worked example
A €1m SAFE on a €5m post-money cap converts into exactly 20% of the company before the new money arrives, which is €1m divided by the €5m cap. The same €1m on a €5m pre-money cap against 8,000,000 existing shares converts at €0.625 a share, giving 1,600,000 shares and about 16.7% at that same point. Same money, same headline cap, a difference of more than three points of ownership.
How to calculate what a SAFE or convertible note converts into
Conversion price
€0.50The cap sets the price
Price per share€1.00
Post-money€12,000,000
The priced round it converts into
Currency
Instrument 1
Type
No discount
After conversion
- Existing holders66.7%
- SAFE16.7%
- New investor16.7%
Which term applies
Post-money SAFESAFE
Price at the cap€0.50
Price with the discountNo discount
Shares issued2,000,000The cap sets the price
Total
| Holder | Shares | Ownership | Value |
|---|---|---|---|
| Existing holders | 8,000,000 | 66.6% | €8,000,000 |
| SAFE | 2,000,000 | 16.7% | €2,000,000 |
| New investor | 2,000,000 | 16.7% | €2,000,000 |
| Total | 12,000,000 | 100.0% | €12,000,000 |
Existing holders
- Ownership
- 66.6%
- Shares
- 8,000,000
- Value
- €8,000,000
SAFE
- Ownership
- 16.7%
- Shares
- 2,000,000
- Value
- €2,000,000
New investor
- Ownership
- 16.7%
- Shares
- 2,000,000
- Value
- €2,000,000
Total
- Ownership
- 100.0%
- Shares
- 12,000,000
- Value
- €12,000,000
How this is calculated
- Price at the cap = valuation cap ÷ the share count the cap is measured against.
- Price with the discount = the priced round's share price × (1 − discount).
- The instrument converts at the LOWEST of these, because both terms exist to reward early risk. Neither can price it above the round itself: a cap is a ceiling, not a floor, so a cap the round never reached simply does not bite.
- Shares issued = the converting amount ÷ the conversion price. For a loan, the converting amount includes accrued interest.
- A post-money cap is measured against the share count after all instruments convert, which is what fixes the holder's percentage.
- A pre-money cap is measured against the count before conversion, so instruments converting together dilute each other.
What this model leaves out
- The instrument converts in full at the priced round. Repaying a loan in cash instead is not modelled.
- Interest is counted in whole months, so no day count convention is applied. German loan documents often specify one, and it moves the figure slightly.
- An ASA's longstop date is not modelled, so a conversion forced by time rather than by a round is out of scope.
- Most favoured nation clauses are not available from this page.
Common questions
- What is the difference between a SAFE and a convertible note?
- A convertible note is a loan. It carries an interest rate and a maturity date, and if the company never raises a priced round the money is in principle repayable. A SAFE is not a loan and has neither, so it sits on the balance sheet as an instrument that converts into shares or does nothing at all. In practice both defer the question of price until a real round sets one. The German Wandeldarlehen is a convertible loan in the note family, which is why it carries interest in this tool and a SAFE does not.
- What is the difference between a pre-money and a post-money SAFE?
- A post-money SAFE fixes the investor's percentage at conversion and pushes the dilution from every other convertible onto the founders. A pre-money SAFE does not: its holders dilute each other as more of them are issued. The gap is not small. Issue several post-money SAFEs and each one holds its stated percentage while the founders absorb all of them, which is why a founder can sign four apparently modest instruments and find the combined bite far larger than the sum they had in mind. This tool models both, so you can see the difference on your own numbers.
- What is a valuation cap and how does it work?
- A cap sets the highest valuation at which the money converts, which means it sets the lowest price per share the investor can pay. If the cap is EUR 5m and the round prices at EUR 15m, the investor converts as though the company were worth EUR 5m and receives three times the shares that the round price would buy. That is the reward for taking the earlier risk. The cap is a ceiling on the valuation, not a floor: if the round prices below the cap, the cap does not bind and the investor converts at the round price.
- What happens if a convertible has both a cap and a discount?
- Whichever term gives the investor the better price applies, and the tool shows you which one won. A 20% discount on a EUR 10m round is a conversion at EUR 8m. If the cap is EUR 6m, the cap gives more shares and the cap applies. If the cap is EUR 12m, the discount is better and the discount applies. The conversion price is the lowest of the capped price, the discounted price and the round price, and it is worth checking rather than assuming, because a cap set above the round valuation does nothing at all.
- What is a Wandeldarlehen?
- A Wandeldarlehen is the German convertible loan, the instrument most early German rounds actually use where a US company would sign a SAFE. It is a loan with an interest rate, a maturity date and a right to convert into shares at a later priced round, usually with a cap, a discount or both. Interest normally accrues and converts along with the principal rather than being paid in cash, so the amount converting is larger than the amount originally lent. Bittern models it directly because no US built cap table tool does.
- What is an advance subscription agreement in the UK?
- An ASA is the UK instrument for money paid now against shares issued later, and it exists in the shape it does for a tax reason. It is not a loan and is not repayable, which is what allows it to qualify for SEIS and EIS relief where a convertible loan would not. That non-repayability is the substantive difference from a note: the investor cannot ask for the money back, so an ASA normally carries a long stop date at which it converts anyway rather than a maturity at which it is repaid. This tool treats it as its own instrument rather than as a SAFE.
Terms on this page
- Pre-money vs post-money SAFE Which of the two SAFE forms you signed decides whether your other convertibles dilute the investor or dilute you.
- Advance subscription agreement (UK) The UK instrument for money paid now against shares issued later, built to stay eligible for SEIS and EIS relief.
- SAFE vs convertible note Both defer the price to a later round. Only one of them is a debt that can fall due.