Fundraising
Convertible Note
Quick definition
Debt instrument that converts to equity at a future priced round; includes a valuation cap, discount, interest, and maturity date.
Convertible notes are short-term debt that accrues interest (typically 5-8% annually) and converts into equity at the next priced round, with the principal + accrued interest converting at either the valuation cap price or with a discount. Unlike SAFEs, notes have a maturity date. If no qualifying round happens by then, the note matures and must be repaid, repriced, or extended. SAFEs have largely replaced convertible notes for seed-stage financing because they're simpler.
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Frequently asked questions
- What is Convertible Note?
- Convertible notes are short-term debt that accrues interest (typically 5-8% annually) and converts into equity at the next priced round, with the principal + accrued interest converting at either the valuation cap price or with a discount. Unlike SAFEs, notes have a maturity date. If no qualifying round happens by then, the note matures and must be repaid, repriced, or extended. SAFEs have largely replaced convertible notes for seed-stage financing because they're simpler.
- Why is Convertible Note important for startups?
- Convertible Note is a fundraising concept that matters for startup founders because it shows up in fundraising readiness, financial decision-making, and operational discipline at the stage where mistakes are expensive to undo. Founders who understand it are better prepared for diligence, board meetings, and investor conversations.
- What category does Convertible Note belong to?
- Convertible Note is a Fundraising term in the StartupCFO finance glossary, alongside other fundraising concepts that founders, CFOs, and accountants use in startup operations and reporting.
- Where can I learn more about Convertible Note?
- Beyond this definition, see the related fundraising terms below, or explore StartupCFO's insights and tools that put Convertible Note in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
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