Define: Conversion Price
In a contract, Conversion Price is the value used to determine how many shares an investor receives when a convertible instrument, such as a SAFE or convertible note, converts into equity. It is typically the lesser of two figures, often the Safe Price or a Discount Price, chosen because it produces a greater number of shares for the investor.
Legal accuracy standard set & glossary spot-checked by Imad Mohammed Nazar , Skadden-trained M&A lawyer, Legal Engineer at GenieAI
What Conversion Price Means in a Contract
Conversion Price is a defined term found in convertible securities documents, most commonly SAFEs (Simple Agreements for Future Equity) and convertible notes. It represents the per-share price used to calculate how many shares an investor's investment converts into once a triggering event, such as a priced equity financing round, occurs. Rather than being a single fixed number set at signing, the Conversion Price is usually the outcome of a formula that compares two or more possible calculations.
The purpose of the mechanism is to protect early investors who take on risk before a company's valuation is established by a formal financing round. By defining Conversion Price as the lower of, for example, the Safe Price (based on a valuation cap) and the Discount Price (a percentage discount off the price paid by new investors), the contract ensures the early investor benefits from whichever calculation gives them more shares for their money.
This term sits at the heart of a Stock Agreement or convertible instrument because it directly determines dilution, ownership percentage, and the ultimate value an investor receives when the company matures financially.
How Conversion Price Is Defined or Measured
Most agreements define Conversion Price by reference to two component calculations. The first, often called the Safe Price, divides a pre-agreed valuation cap by the company's fully diluted capitalization immediately prior to conversion. The second, the Discount Price, applies a negotiated discount percentage to the price per share paid by investors in the triggering financing round. The contract then specifies that the Conversion Price equals whichever of these produces the greater number of shares for the holder, effectively the lower price per share.
Some agreements simplify this by using only one method, such as a flat discount, while more sophisticated instruments layer in additional triggers, such as different pricing for a liquidity event, dissolution, or a subsequent equity financing. The mechanics can also depend on how.
Relevant Circumstances
- When a SAFE converts at the better of the cap price or discount price
- If the calculation must maximise shares delivered to the SAFE holder
- Where conversion mechanics require selecting between two formulas