Convertible note

Convertible notes allow investors to make an investment as a loan, usually during the seed stage. But instead of paying the investor back in cash, the amount is converted (hence the term) into equity once it is easier to determine the company's value, usually at a series A round. Convertible notes are preferred especially when startups are young and it is tricky to agree on a valuation (and the investor's ownership percentage). But remember, convertible notes are a form of debt so it will likely carry interest. In the note's term, the interest rate will be indicated, along with the discount rate, maturity date, and valuation cap.

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