A convertible note is an investment vehicle often used by seed investors investing in startups; who wish to delay, establishing a valuation for that start-up until a later round of funding or milestone. Convertible notes are structured as loans with the intention of converting to equity. The outstanding balance of the loan is automatically converted to equity at a specific milestone, often at the valuation of a later funding round. In order to compensate the angel investor for the additional risk of investing in the earlier round, convertible notes may have additional clauses, such as caps, interest rates, and/or discounts.
What is a convertible note?
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