Capped Notes
Content
Definition
Capped Notes are a form of convertible note used in financing that has a maximum valuation at which the notes will convert into equity.
Usage and Context
Capped notes are used by startups for fundraising. They let investors convert their investment into company shares later, but not above a set price.
Frequently asked questions
- What is a capped convertible note? A capped convertible note is a loan that can turn into company shares. It has a top limit on the company`s value for this conversion.
- What is the difference between capped and uncapped convertible notes? Capped notes have a max company value for conversion. Uncapped notes don`t, risking higher costs for investors.
- What is a cap conversion? Cap conversion happens when a loan turns into shares at a preset max company value. It protects investors from paying too much.
Benefits
Capped notes give startups money now without setting a company value. They offer investors a chance to convert to shares at a fair maximum value.
Conclusion
Capped notes help startups raise funds flexibly. They balance the deal for both sides, making early investment more attractive.
