Convertible Note
Content
Definition
Convertible Note is a short-term debt that converts into equity, typically in conjunction with a future financing round.
Usage and Context
Startups often use convertible notes for initial funding. It`s easier than selling stock early on. This way, investors can later become part owners when the company grows.
Frequently asked questions
- Is a convertible debt a short-term loan that can be turned into equity when future financing is issued? Yes, a convertible note is a loan that can become part of the company`s ownership during a future money raise.
- How does a convertible note convert to equity? A convertible note turns into equity usually when the company gets more investment. The details, like when and how much, are agreed upon early.
- What does a convertible note convert into? A convertible note can turn into shares of the company. This means the lender could become a part-owner.
Benefits
Convertible notes let startups get money quickly without deciding how much the company is worth right away. It`s also good for investors looking to become part-owners later.
Conclusion
Convertible notes are a handy tool for startups. They offer a simple way to get funds early, with the chance for investors to join in the company`s success later.
