When convertible notes or SAFEs convert into equity, they do this at a certain price per share. To incentive and reward early investors, those convertible notes or SAFEs often come with a discount, meaning they convert into shares at a price per share that is lower than the price per share paid by new investors (who do not have a discount). A lower conversion price means more shares.
- Seed round: $100k SAFE with a 20% discount
- Series A: Price per share paid by new investors=$5
The $100k converts into 25,000 shares ($100k / $5*0.8)