# Accrued Interest

## Quick Definition
Interest that accumulates on convertible notes over time, typically converting to additional equity.

## What is Accrued Interest?
Convertible notes earn interest (typically 4-8% annually) that accumulates over time. At conversion, this interest usually converts to additional shares rather than being paid in cash.

## Interest Impact
On a $500K note at 6% held for 2 years, accrued interest adds $60K. That extra $60K converts to shares, giving the investor more equity than the principal alone would provide.

## SAFEs vs. Notes
SAFEs don't accrue interest. This is one key difference from convertible notes. Founders often prefer SAFEs to avoid the complexity and extra dilution from accrued interest.

### Formula
Simple Interest Accrual:
- Accrued Interest = Principal x Rate x Time
- Total Converting = Principal + Accrued Interest

**Example:** $500K at 6% for 18 months:
- $500K x 0.06 x 1.5 = $45K accrued

**Example**
- Convertible note: $300K at 5% interest.
- Time to conversion: 2 years.
- Accrued interest: $300K x 5% x 2 = $30K
- Total converting: $330K
- If conversion price is $1/share:
  - Original principal: 300,000 shares
  - With accrued interest: 330,000 shares
  - 10% more dilution from interest alone.