Convertible Note

A convertible note is a loan that is expected to convert into equity rather than be repaid in cash. It carries an interest rate and a maturity date, and it sits ahead of equity in the capital structure because it is legally debt.

Like a SAFE, it defers valuation to a future priced round. Unlike a SAFE, it creates a genuine obligation: if the note matures without converting, the holder can in principle demand repayment.

Notes are used for bridge financings between priced rounds, for early rounds where valuation is genuinely unknowable, and in situations where investors want the protection of creditor status. Accrued interest typically converts into equity alongside principal rather than being paid in cash.

Where a maturity date approaches without a qualifying round, the parties usually extend rather than enforce — but the leverage that deadline creates is the point.

• Interest rate — accrues and usually converts with principal
• Maturity date — when repayment can be demanded
• Valuation cap and discount — as with a SAFE
• Qualified financing threshold — the round size that triggers conversion
• Change of control provision — what happens on an early acquisition

• Maturity can force a restructuring or down round at a vulnerable moment
• Accrued interest quietly increases dilution over time
• Multiple notes with differing terms complicate any later financing
• Debt on the balance sheet can deter later investors