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A short-term debt instrument that converts into equity at a future funding round, typically used in early-stage fundraising.
A convertible note is a short-term debt instrument used in early-stage fundraising that converts into equity at a future priced round. Like a SAFE, it allows a startup to raise capital without setting a valuation immediately — but unlike a SAFE, it is structured as debt with an interest rate and maturity date.
Convertible notes typically carry an interest rate of 4–8% per year and a maturity date of 12–24 months. If a priced round doesn't occur before maturity, the note may be repaid in cash or extended — a potential source of founder-investor friction.
Like SAFEs, convertible notes usually include a valuation cap and/or a discount rate that rewards early investors when the note converts. The accrued interest also converts to equity at the next round.
Convertible notes were the dominant early-stage instrument before SAFEs became widespread. They are still commonly used in markets outside the US, and by some investors who prefer the debt structure and the legal protections it provides.
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