A percentage reduction applied to the per-share price in a SAFE or convertible note conversion, giving early investors a lower price than new investors.
The discount rate in a SAFE or convertible note gives early investors a lower price per share when their instrument converts into equity, relative to the price new investors pay in the priced round. A 20% discount means the early investor pays 80% of the new investor's price per share — getting more shares for the same dollar amount invested.
For example, if a Series A is priced at $1.00 per share, a holder of a SAFE with a 20% discount would convert at $0.80 per share. On a $100,000 investment, the SAFE holder would receive 125,000 shares instead of 100,000 shares.
Discount rates and valuation caps work together. When an instrument converts, the investor typically gets the benefit of whichever term gives them more shares — the cap or the discount. In a round priced at a high valuation, the cap usually provides more benefit. In a round priced close to the cap, the discount might provide more. Some SAFEs have only a cap (no discount), only a discount (no cap), or both — understanding which applies is important for modeling outcomes.