Model how seed investment convertible notes and iSAFEs convert into equity in your priced Series A round based on Valuation Caps and Discount Rates.
How Valuation Caps and Discounts Interact
Early-stage angels and accelerators invest via SAFE / iSAFE (India SAFE) notes that convert into preferred shares in the next priced round at the more favorable of two mechanisms:
Valuation Cap: Sets the maximum valuation ceiling at which noteholder funds convert (protects investor upside).
Discount Rate: Applies a percentage discount (typically 15%–25%) to the Series A valuation price.
The investor converts at whichever method yields the lower effective share price (higher equity percentage).
Formula
Cap Conversion Valuation = Min(Valuation Cap, Series A Valuation × (1 − Discount %)) Note Investor Ownership % = Note Investment / Effective Conversion Valuation
Frequently Asked Questions
An iSAFE (India Simple Agreement for Future Equity) is an India-compliant version of the Y Combinator SAFE note, structured as Compulsorily Convertible Preference Shares (CCPS) under the Companies Act 2013.
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If the Series A valuation is lower than the Cap, the Discount Rate (e.g. 20% discount) takes precedence, ensuring noteholders still receive a bonus for their early risk.