Convertible Note
Flexible Early-Stage Financing
Definition
A convertible note is a short-term debt instrument that converts to equity at a discount in a future funding round. Unlike SAFEs, notes have an interest rate and a maturity date.
In Simple Terms
It's like a loan that turns into equity. You borrow money now, and when you raise your next round, the loan automatically converts to shares at a discounted price. You also pay a small interest rate.
Why It Matters
Convertible notes were the traditional standard before SAFEs. They're more complex (interest accrual, maturity dates) but offer similar flexibility for early-stage fundraising. Many investors still prefer them over SAFEs.
Example
You raise $100K on a convertible note with 20% discount, 5% interest, and 12-month maturity. If you raise Series A in 8 months, the note converts to shares at 20% discount. If you don't raise within 12 months, investors can demand repayment.