Fundraising
Convertible Note
A convertible note is a short-term loan that converts into equity at a later priced round. Unlike a SAFE, it is debt: it carries an interest rate and a maturity date.
Also known as: convertible note, convertible debt
Why it matters
Convertible notes do the same job as SAFEs (raise money now, set the price later) but as debt. The interest accrues and increases the investor eventual equity, and the maturity date is a real deadline: if you have not raised a priced round by then, the note technically comes due. Founders choose notes when investors want the extra protection of debt, but that maturity date can become a pressure point.
Worked example
A $100,000 note at 6 percent interest with a $5M cap, converting in 18 months, becomes roughly $109,000 of equity at conversion (principal plus accrued interest).
Common mistakes
- Forgetting the maturity date, which can force an awkward conversation if you have not raised.
- Overlooking how accrued interest adds to your dilution.
- Stacking notes with different caps and terms until the cap table is a mess.
Frequently asked questions
What is a convertible note?
A short-term loan that converts into equity at a later priced round. Unlike a SAFE, it is debt, carrying an interest rate and a maturity date. It is a common early-stage financing tool.
How is a convertible note different from a SAFE?
A note is debt with interest and a deadline; a SAFE is not. If you do not raise a priced round before a note matures, it technically comes due. SAFEs avoid that pressure.
What is the interest rate on a convertible note?
Often in the low-to-mid single digits annually. The interest accrues and converts into additional equity rather than being paid in cash. It increases the investor's eventual stake.
What happens when a convertible note matures?
Ideally it converts at a priced round first. If not, options include repaying it, extending it, or converting at a default valuation. An unplanned maturity can create a weak negotiating position.
What are the typical terms of a convertible note?
A principal amount, an interest rate, a maturity date, and usually a valuation cap and/or discount that set the conversion price. The cap and discount reward the early risk. Read how they interact.
Why choose a convertible note over a SAFE?
Some investors prefer the added protection of debt, including interest and a maturity deadline. In those cases a note can close the round. For founders, SAFEs are usually simpler and carry less downside.
Related terms
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Last updated 2026-06-02 · Back to the glossary