# Conversion Discount

## Quick Definition
A percentage reduction in share price that convertible investors receive when converting to equity.

## What is a Conversion Discount?
A discount gives convertible note or SAFE holders a reduced price when converting. A 20% discount means they pay 80% of what Series A investors pay. It rewards early risk-taking.

## Discount vs. Cap
Discounts and caps work independently. Investors get whichever produces more shares. If the cap produces a lower effective price than the discount, the cap controls.

## Typical Discounts
15-25% discounts are standard. Higher discounts compensate for more risk (earlier stage, longer time to conversion). Some notes have both discount and cap; some have only one.

### Formula
**Discount conversion:**
Conversion Price = Series A Price x (1 - Discount %)

**Example:** Series A at $2/share, 20% discount:
Conversion Price = $2 x 0.80 = $1.60/share

**Example**
SAFE terms: $100K, 20% discount, $8M cap.

Series A: $3M at $12M post-money ($1.20/share).

Discount price: $1.20 x 0.80 = $0.96/share

Cap price: $8M / 10M shares = $0.80/share

Cap produces lower price, so SAFE converts at $0.80.

Shares: $100K / $0.80 = 125,000 shares

## Related Terms

### **Most Favored Nation (MFN)**  
A provision guaranteeing an investor will receive terms at least as favorable as any subsequent investor receives.
  
### **Qualified Financing**  
The minimum raise amount that triggers automatic conversion of convertible notes or SAFEs.
  
### **Maturity Date**  
The deadline by which a convertible note must be repaid or converted to equity.