Add Initials Convertible Note Agreement Template For Free

Also known as convertible promissory notes, bridge notes, or convertible debt. Since convertible notes are securities, they must be registered, or qualify for an exemption from registration, under the Securities Act.

Convertible Note Meaning: A Hybrid of Debt and Equity. What is a convertible note? In short, a convertible note is originally structured as a debt investment but has a provision that allows the principal plus accrued interest to convert into an equity investment at a later date.

A convertible note is a short-term debt agreement that converts into equity at a future date. Usually, this happens when one of these events takes place: ? The company raises enough capital to reach a pre-determined benchmark.

Convertible notes provide startups with an initial round of financing, without the need to come up with a valuation for investors or a proof of profits for banks. Unlike regular debt, instead of getting repaid in principal and interest, investors receive preferred stock based on the terms set in the convertible note.

A convertible note agreement is a legal document that outlines the terms and conditions of a loan that can be converted into equity in the future. Essentially, it's a way for startups to raise money without having to give away equity upfront.

If your startup fails after raising money with a convertible note, your investors will likely lose their entire investment.

Common provisions of a convertible debt financing include: The interest rate. Usually somewhere between 4% and 8%. The maturity date. Usually 12?24 months. A mandatory conversion paragraph. ... An optional conversion paragraph. ... A change of control provision. ... A conversion discount. ... A valuation cap. ... An amendment provision.

For example, an angel investor invests $300,000 in a startup as a convertible note. The terms of the note are a 20% discount and automatic conversion after a qualified funding round of $1 million.