Startup & fundraising
Convertible Note
Formula reviewed by Tahir Asif, CMA
A short-term loan that converts into equity at a future round, usually with a valuation cap and/or discount.
A convertible note is debt: it accrues interest and has a maturity date, at which point it either converts to equity (typically at the next priced round) or, in principle, must be repaid — though in practice a struggling startup rarely has the cash to repay a maturing note.
Like a SAFE, a convertible note usually includes a valuation cap and/or discount rate that determines its conversion price. The interest and maturity date are what most clearly distinguish it from a SAFE, which has neither.
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