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Discount Rate

The discount rate is a term in a Convertible Note or SAFE that gives investors a reduced price to that paid by the Series A investors.  Typical discounts range from 0% to 20%.

Let's say you hold a convertible note with a 20% discount rate. If a venture capitalist invests in that company at $20 million valuation paying $3 per share, your note converts to equity at $2.40 ($3.00 * .8) per share. Note that discount rates usually are only applied when the valuation is below the Valuation Cap.