What is a Discount Rate?
Discount Rate
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.
Why It Matters for Startups
Directly dictates the cap table and dilution structure during fundraising; understanding Discount Rate helps founders model equity distributions when structuring rounds for investor incentives in convertible notes.
Detailed 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.
Frequently Asked Questions
Q:What is a typical discount rate?
Usually between 15% and 20%.
Q: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.
Quick Facts
- CategoryFunding
- Key ApplicationInvestor incentives in convertible notes
Coverage Trend12 Weeks
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