# What is Discount Rate? Definition & Technical Mechanics

> **Source:** [SPIDITS AI Startup & Venture Intelligence Glossary](https://spidits.com/startup-glossary)  
> **Category:** Funding  
> **Canonical Citation:** [https://spidits.com/startup-glossary/discount-rate](https://spidits.com/startup-glossary/discount-rate)

## Definition
A Discount Rate is a clause in a SAFE or convertible note that gives the early investor a percentage discount on the share price of the next priced equity round.

## Architectural Mechanics & Deep Dive
A Discount Rate is a clause in a SAFE note or convertible note that gives the early investor a percentage discount (typically 15% to 20%) on the share price of the next priced equity round. If the next round price is $1.00 per share, an investor with a 20% discount converts their note at $0.80 per share, acquiring more equity than new investors for the same check size.

## Industry Applications & Real-World Use Cases
Investor incentives in convertible notes

## Frequently Asked Questions

### What is a typical discount rate?
Usually between 15% and 20%.

### Can an investor combine a cap and a discount?
Yes. Most convertible notes convert at whichever method (cap vs. discount) yields a lower share price (more shares) for the investor.

## Related Terminology
- [safe-note](https://spidits.com/startup-glossary/safe-note)
- [valuation-cap](https://spidits.com/startup-glossary/valuation-cap)
- [seed-round](https://spidits.com/startup-glossary/seed-round)

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*From the SPIDITS AI Knowledge Base (300+ terms indexed). Explore full technical definitions: [https://spidits.com/startup-glossary](https://spidits.com/startup-glossary)*