What it is
A convertible note is a loan an investor makes to a startup that is designed to convert into shares later, usually at the next priced financing round, rather than being paid back in cash.
Facts
- Unlike a SAFE, a note is debt: it carries an interest rate (often 2% to 8%) and a maturity date (often 12 to 24 months).
- Conversion terms use a valuation cap and/or a discount (typically 10% to 25%).
- Accrued interest usually converts into extra shares rather than being paid in cash.
- If it matures before a qualifying round, it can technically become repayable or require renegotiation.
Who it's for
Early-stage founders raising bridge or seed money, especially investors who prefer the creditor protections of debt.
How it helps you
Like a SAFE, it defers the valuation debate and closes quickly, while giving investors downside protection via the debt structure.
Caveats
The maturity date is a real deadline. If you haven't raised a priced round by then, noteholders can demand repayment or leverage you into worse terms.
Conclusion
A convertible note is a SAFE with a clock and interest attached; use it when investors want debt protection, but watch the maturity date.
