Deal Terms
Discount Rate
In SAFE/convertible note context: the percentage reduction applied to the next round's price to reward early investors. Typically 15-20%.
In the context of SAFEs and convertible notes, the discount rate is the percentage reduction in conversion price that early investors receive relative to Series A investors. A 20% discount means if Series A investors pay $1.00/share, SAFE holders convert at $0.80/share — they receive 25% more shares for the same investment. The discount rewards early investors for taking more risk before the business was validated. Discount rates are capped by the valuation cap — investors always get the better of the cap price or the discounted price. Typical discount rates range from 15-25%. Higher discounts compensate for higher risk (earlier stage, longer time horizon) or lack of a valuation cap.