Convertible Notes Guide for Startups

What is a Convertible Note?

A convertible note (also called a convertible promissory note or convertible debt) is a short-term loan that converts into equity at a future date—typically when your startup raises its next priced equity round (Series Seed, Series A, etc.).

Think of it like this: An investor loans your startup $100,000 today. Instead of paying them back in cash with interest, the loan automatically converts into shares of stock when you raise your next funding round. The investor gets equity at a discount compared to new investors in that round.

Why it matters: Convertible notes let you raise seed funding quickly without negotiating a valuation for your company. This speeds up fundraising and defers the valuation discussion until your startup has more traction.

How Convertible Notes Work

The Basic Mechanics

Step 1: Investor loans money to startup

  • Investor provides $100,000
  • Startup signs a convertible promissory note
  • Note includes terms: interest rate, maturity date, valuation cap, discount rate

Step 2: Note accrues interest over time

  • Most convertible notes have 5-8% annual interest
  • Interest accrues (compounds) but isn't paid in cash
  • Accrued interest adds to the principal amount that converts

Step 3: Startup raises priced equity round (Series Seed/A)

  • Company raises $2M Series A at $10M post-money valuation
  • New Series A investors pay $2.00/share

Step 4: Convertible note automatically converts to equity

  • Note converts at a discount (typically 20%) or valuation cap (whichever is better for investor)
  • Investor gets more shares per dollar than new investors
  • Loan is extinguished; investor now owns equity

Example Conversion

Scenario:

  • You raised $100,000 via convertible note 12 months ago
  • Note terms: 6% interest, 20% discount, $6M valuation cap
  • You're now raising Series A: $2M at $10M post-money valuation
  • Series A investors pay: $2.00/share

Option 1: Convert using 20% discount

  • Investor pays: $2.00 × (1 - 0.20) = $1.60/share
  • Principal + interest: $100,000 + $6,000 = $106,000
  • Shares received: $106,000 / $1.60 = 66,250 shares

Option 2: Convert using $6M valuation cap

  • Cap price: $6M post-money / total shares = lower price per share
  • If using cap results in better (lower) price, investor uses cap instead

Investor gets whichever option gives them more shares (lower price per share).

Key Terms in Convertible Notes

1. Principal Amount

What it is: The amount of money the investor is loaning to your startup.

Example: Investor writes a $50,000 check → $50,000 principal

Why it matters: This is the base amount that will eventually convert to equity. The more you raise via convertible notes, the more dilution when they convert.

2. Interest Rate

What it is: Annual percentage rate that accrues on the principal amount.

Typical range: 5-8% annually

How it works:

  • Interest accrues (compounds) monthly or annually
  • You don't pay interest in cash
  • Accrued interest adds to principal at conversion

Example:

  • Principal: $100,000
  • Interest rate: 6% annually
  • Time to conversion: 18 months
  • Accrued interest: $100,000 × 6% × 1.5 years = $9,000
  • Total converting amount: $109,000

Why it matters: Higher interest = more dilution when note converts. But interest rates are usually negotiable and modest (2-3% difference doesn't dramatically affect outcome).

3. Maturity Date

What it is: The deadline by which the note must either convert to equity or be repaid in cash.

Typical range: 18-24 months from issuance

What happens at maturity:

Option A: You've raised a priced round before maturity

  • Note automatically converts to equity
  • Maturity date becomes irrelevant
  • Most common outcome (this is what everyone expects)

Option B: You haven't raised before maturity

  • Legally, note becomes due and payable
  • Investor can demand repayment of principal + interest
  • In practice, investors usually extend maturity or convert at current valuation

Option C: Company fails/shuts down

  • Investor treated as creditor (gets paid before equity holders)
  • Usually recovers little to nothing (startups rarely have assets)

Example timeline:

  • January 2024: Raise $500K via convertible notes (maturity: January 2026)
  • September 2025: Raise Series A → notes convert automatically
  • Maturity date never matters (typical scenario)

Why it matters: If you don't raise another round before maturity, you'll need to:

  • Negotiate extension with investors (usually granted)
  • Raise another round quickly
  • Repay the notes in cash (rare, often impossible)

4. Valuation Cap

What it is: The maximum valuation at which the convertible note will convert, regardless of your actual Series A valuation.

Purpose: Protects early investors from excessive dilution if your valuation skyrockets

Typical range: $3M-$10M for pre-seed/seed stage

How it works:

Scenario 1: Series A valuation BELOW cap

  • Your Series A: $8M post-money valuation
  • Note valuation cap: $10M
  • Note converts at Series A price (cap doesn't matter)

Scenario 2: Series A valuation ABOVE cap

  • Your Series A: $20M post-money valuation
  • Note valuation cap: $8M
  • Note converts as if company valued at $8M (investor gets 2.5x more shares)

Math example:

Series A Terms New Investors Convertible Note Holder (with $8M cap)
Valuation $20M post-money Converts at $8M (cap)
Price per share $2.00 $0.80 ($8M/$10M × $2.00)
$100K investment buys 50,000 shares 125,000 shares
Ownership % 0.5% 1.25% (2.5x more)

Why it matters: The valuation cap is the most important term for investors. It ensures they get rewarded for taking early risk if your valuation increases significantly.

5. Discount Rate

What it is: A percentage discount on the Series A share price given to convertible note holders.

Typical range: 15-25% (20% is standard)

How it works:

  • Series A investors pay: $2.00/share
  • Convertible note holders pay: $2.00 × (1 - 0.20) = $1.60/share
  • Note holder gets 25% more shares for same investment

Math example:

Investor Type Price Paid $100K Buys
Series A investor $2.00/share 50,000 shares
Convertible note holder (20% discount) $1.60/share 62,500 shares (25% more)

Discount vs Valuation Cap:

  • Investor uses whichever gives them more shares (lower price)
  • If valuation increases a lot → cap usually better for investor
  • If valuation stays flat → discount usually better for investor

Why it matters: The discount rewards early investors for taking risk when your company was less proven. It's negotiable but 20% is market standard.

6. Conversion Triggers

What it is: Events that cause the note to automatically convert from debt to equity.

Typical conversion triggers:

1. Qualified Financing (most common)

  • Defined as raising $X+ in a priced equity round
  • Typical threshold: $500K-$1M
  • Note automatically converts when you close the round

Example:

  • Qualified financing defined as: "$1,000,000+ priced equity round"
  • You raise $2M Series A → convertible notes automatically convert

2. Change of Control (acquisition)

  • Company gets acquired before raising priced round
  • Note converts to equity immediately before acquisition
  • Or note holder gets paid out in cash (typically at 1x-2x principal + interest)

Example:

  • You raised $500K in convertible notes
  • Google acquires your company for $10M before Series A
  • Note converts to equity just before acquisition closes
  • Investor participates in acquisition payout as equity holder

3. Maturity Date (deadline)

  • If no qualified financing or acquisition happens by maturity
  • Investor can demand repayment or negotiate conversion/extension

Why it matters: Understanding conversion triggers helps you plan fundraising timing and avoid surprises.

Convertible Notes vs SAFE Notes

Both convertible notes and SAFE notes serve similar purposes (raise early funding without setting valuation), but have important differences:

Feature Convertible Notes SAFE Notes
Legal structure Debt (loan) Neither debt nor equity (contractual right)
Interest rate Yes (5-8% typically) No
Maturity date Yes (18-24 months) No
Repayment obligation Yes (if doesn't convert) No
Valuation cap Optional (common) Optional (common)
Discount rate Optional (common) Optional (common)
Legal complexity More complex (debt security laws) Simpler (standardized docs)
Investor preference Traditional investors Tech/YC ecosystem
Pro-rata rights Sometimes included Typically not included

When to Use Convertible Notes Instead of SAFEs

Use convertible notes if:

✅ Your investors prefer them - Some institutional investors or angel groups prefer convertible notes over SAFEs for legal/regulatory reasons

✅ You want pro-rata rights - Convertible notes can include pro-rata rights (SAFE notes typically don't), allowing early investors to participate in future rounds

✅ You're raising a bridge round - Convertible notes work well for bridge financing between priced equity rounds

✅ Maturity date provides discipline - Some founders prefer the urgency of a maturity date to push themselves to raise a priced round

✅ Interest rate protects investors - Convertible note interest compensates investors for opportunity cost, making them more attractive to some angels

Use SAFE notes if:

✅ You want simpler docs - SAFEs are shorter, simpler, and cheaper to execute ✅ You prefer no maturity date - No pressure to raise priced round by specific deadline ✅ You're raising from tech-forward investors - Y Combinator and Silicon Valley investors prefer SAFEs ✅ You want founder-friendly terms - No interest, no maturity = less financial burden

Bottom line: SAFEs are increasingly the standard for early-stage tech startups, but convertible notes remain common in certain investor circles and for bridge rounds.

For a detailed comparison, see our SAFE vs Convertible Notes guide.

Advantages of Convertible Notes

For Startups (Founders)

1. Speed to close

  • No valuation negotiation required
  • Standardized documents (faster legal review)
  • Can close with one investor and add others on rolling basis
  • Typical timeline: 2-4 weeks from first conversation to signed docs

2. Defer valuation discussion

  • Don't have to set valuation when you have minimal traction
  • Wait until Series A when you have more leverage
  • Avoid undervaluing your company pre-product/market fit

3. Lower legal costs

  • Simpler documents than priced equity rounds
  • Typical legal costs: $3K-$10K (vs $20K-$50K for priced round)
  • Standardized terms reduce negotiation time

4. Bridge to priced round

  • Perfect for "almost ready for Series A" startups
  • Raise $500K-$1M to hit milestones before pricing round
  • Gives runway to improve terms for Series A

For Investors

1. Discount on future equity

  • Get 15-25% more shares than Series A investors
  • Valuation cap protects against excessive dilution
  • Rewarded for taking early risk

2. Downside protection (if debt)

  • Legally a loan until it converts
  • If company fails, debt holders get paid before equity holders
  • Priority in liquidation (though usually nothing to recover)

3. Simple to execute

  • Shorter documents than equity rounds
  • Less due diligence required
  • Faster close means less competition

Disadvantages of Convertible Notes

For Startups (Founders)

1. Maturity date creates pressure

  • Must raise priced round before maturity (18-24 months)
  • If you miss deadline, investors can demand repayment (though rare)
  • Extending maturity can be awkward negotiation

2. Interest accrues over time

  • 5-8% annual interest adds to dilution
  • If it takes 2 years to raise Series A, interest compounds
  • More dilution than SAFE notes (which have no interest)

3. Debt on balance sheet

  • Convertible notes are technically debt until they convert
  • Can complicate accounting and tax filings
  • May impact credit or future debt financing

4. Valuation caps can be restrictive

  • If you negotiate low cap ($3M) and later deserve $20M Series A
  • Early investors get huge discount (3x-5x share differential)
  • Can create tension with Series A investors

For Investors

1. No control or board seat

  • Convertible note holders aren't shareholders (yet)
  • No voting rights or board representation
  • Limited ability to influence company decisions

2. Conversion uncertainty

  • Don't know how much equity you'll own until conversion
  • Valuation cap/discount math can be complex
  • If company doesn't raise again, note may never convert

3. Tax complexity

  • Convertible notes may have different tax treatment than equity
  • Accrued interest creates tax reporting requirements
  • Consult tax advisor on implications

How to Structure a Convertible Note Round

Step 1: Decide Terms with Lead Investor

Work with your lead investor (largest check writer) to agree on standard terms:

Required terms:

  • Principal amount: Total you're raising (e.g., $500,000)
  • Interest rate: 5-8% annually (6% is common)
  • Maturity date: 18-24 months from closing
  • Valuation cap: $3M-$10M depending on stage and traction
  • Discount rate: 15-25% (20% standard)

Optional terms:

  • Qualified financing threshold: Minimum raise amount that triggers conversion (e.g., $1M)
  • Pro-rata rights: Let note holders invest in future rounds
  • Most Favored Nation (MFN) clause: If you give better terms to later investors, earlier investors get same terms
  • Conversion at maturity: What happens if no qualified financing by maturity

Step 2: Draft Note Documents

Work with your attorney to draft:

Main document: Convertible Promissory Note

  • Defines all terms (principal, interest, maturity, conversion mechanics)
  • Signed by company and each investor
  • Creates legal debt obligation

Optional: Note Purchase Agreement

  • Some rounds include separate purchase agreement
  • Defines investor representations, company covenants
  • More common in larger convertible note rounds ($1M+)

Legal costs: $3,000-$10,000 for standard convertible note documents

Template sources:

Step 3: Close with Lead Investor

Typical closing process:

  1. Sign documents - Lead investor signs note and wires funds
  2. Board approval - Board authorizes issuance of notes
  3. File with Delaware - Record note with Delaware (if Delaware corp)
  4. Update cap table - Add note to cap table in "Convertible Securities" section

Closing timeline: 1-2 weeks after finalizing terms

Step 4: Add Other Investors on Same Terms

Rolling close benefit:

  • After lead investor closes, you can add other investors on identical terms
  • No need to wait for everyone to be ready
  • Can close over 2-3 months as you find additional investors

Process for each new investor:

  1. Share finalized note documents (same terms as lead)
  2. New investor signs and wires funds
  3. Update cap table
  4. Send executed note to investor

Step 5: Track Notes Until Conversion

Important tracking:

  • ✅ Maturity dates for all notes
  • ✅ Accrued interest calculations (monthly or annually)
  • ✅ Total principal + interest outstanding
  • ✅ Conversion trigger thresholds

Update cap table to show:

  • Total convertible note principal
  • Total accrued interest
  • Pro forma ownership if notes converted today
  • Dilution impact on founders and existing shareholders

Set reminders:

  • 6 months before maturity: Start Series A fundraising process
  • 3 months before maturity: Accelerate fundraising or plan maturity extension
  • At maturity: Convert, extend, or repay (convert is most common)

Common Convertible Note Mistakes

Mistake #1: Setting Valuation Cap Too Low

The problem: You set a $3M valuation cap at pre-seed stage. Two years later, you raise Series A at $20M valuation. Your convertible note investors get 6.7x more shares than Series A investors.

Why it's bad:

  • Series A investors see early investors getting massive discount
  • Creates perception that you're not protecting new investors
  • Can make Series A harder to close
  • Early investors own way more than they "deserve" for risk/timing

The fix:

  • ✅ Set valuation cap based on realistic Series A range
  • ✅ Use 30-50% discount from expected Series A valuation
  • ✅ Revisit cap if you're crushing it (and offer to adjust with investor approval)

Example:

  • Expected Series A valuation: $10M-$15M
  • Set convertible note cap: $6M-$8M (reasonable discount)
  • When you actually raise at $15M, early investors get fair but not excessive discount

Mistake #2: Raising Too Much on Convertible Notes

The problem: You raise $2M via convertible notes before Series A. When notes convert at 20% discount, they consume huge portion of Series A round and dilute founders more than expected.

Example math:

  • Raised $2M in convertible notes (20% discount, $8M cap)
  • Series A: $3M at $12M post-money
  • Convertible notes convert at $8M cap
  • Note holders get: $2M / ($8M/shares) = 25% ownership
  • Series A investors get: $3M / ($12M/shares) = 25% ownership
  • Result: You raised $3M in equity but gave away 50% of company

Why it's bad:

  • Founders more diluted than anticipated
  • Series A investors get less ownership than expected
  • Creates complex cap table

The fix:

  • ✅ Limit convertible note fundraising to $500K-$1M for seed stage
  • ✅ Model dilution scenarios before issuing notes
  • ✅ Consider priced round if raising $1.5M+

Mistake #3: Maturity Date Arrives with No Series A

The scenario: You raised $500K in convertible notes with 18-month maturity. Month 17 arrives, you're not ready for Series A yet, and investors start asking about repayment.

Why it's bad:

  • Legally, you owe principal + interest in cash
  • Most startups don't have $500K cash to repay
  • Creates stress and potentially hostile negotiations
  • Investors can theoretically force liquidation (rare but possible)

The fix:

  • ✅ Start Series A process 6 months before maturity
  • ✅ Communicate proactively with note holders if you'll miss maturity
  • ✅ Request extension in writing (most investors grant 6-12 month extension)
  • ✅ Offer sweetener for extension (slightly better cap or discount)

Example extension request email:

"Hi [Investor], our convertible notes mature in 3 months. We've made great progress [cite metrics] but aren't quite ready for Series A. Would you be willing to extend maturity by 12 months to [new date]? We're happy to improve the cap from $8M to $7M to reflect the extension. Let me know if you'd like to discuss."

Result: 95%+ of investors grant extension (they want your company to succeed, not repay debt).

Mistake #4: Forgetting to Track Accrued Interest

The problem: You raised $500K via convertible notes 18 months ago. You forget that 6% interest has been accruing. At Series A, notes convert based on $545,000 (principal + $45K interest), not $500K.

Why it's bad:

  • Surprise dilution for founders
  • Cap table is wrong
  • May create discrepancies with investors

The fix:

  • ✅ Use cap table software (Carta, Pulley) to automatically calculate accrued interest
  • ✅ Update cap table quarterly with current accrued interest
  • ✅ Model conversion scenarios including full accrued interest
  • ✅ Communicate total converting amount to Series A investors

Interest calculation example:

  • Principal: $500,000
  • Interest rate: 6% annually
  • Time elapsed: 18 months (1.5 years)
  • Accrued interest: $500,000 × 6% × 1.5 = $45,000
  • Total converting amount: $545,000

Mistake #5: Inconsistent Terms Across Investors

The problem: You give your first investor a $6M cap and 20% discount. A few months later, you give another investor a $8M cap and 15% discount. First investor discovers the discrepancy and demands "most favored nation" treatment.

Why it's bad:

  • Creates tension with early investors
  • May trigger MFN clauses (if included)
  • Shows lack of organizational discipline
  • Complicates cap table

The fix:

  • ✅ Set standard terms with lead investor
  • ✅ Give all subsequent investors identical terms (same cap, discount, maturity)
  • ✅ Only change terms if materially justified (e.g., valuation increased significantly)
  • ✅ Communicate changes to existing note holders if MFN clause exists

Convertible Note Conversion Scenarios

Scenario 1: Successful Series A (Most Common)

Setup:

  • Raised $1M via convertible notes (6% interest, 20% discount, $8M cap, 18-month maturity)
  • 15 months later, raising Series A: $3M at $15M post-money

Conversion math:

Step Calculation
1. Calculate accrued interest $1M × 6% × 1.25 years = $75,000
2. Total converting amount $1M + $75K = $1,075,000
3. Series A price per share $15M post-money / 10M shares = $1.50/share
4. Price with 20% discount $1.50 × (1 - 0.20) = $1.20/share
5. Price using $8M cap $8M / 10M shares = $0.80/share
6. Use better price (lower) $0.80/share (cap is better for investor)
7. Shares for note holders $1,075,000 / $0.80 = 1,343,750 shares
8. Note holder ownership 1,343,750 / 10M = 13.4%

Result: Convertible note holders get 13.4% ownership. Founders and Series A investors share remaining 86.6%.

Scenario 2: Acquisition Before Series A

Setup:

  • Raised $500K via convertible note (6% interest, 20% discount, $6M cap)
  • 12 months later, Google acquires company for $20M (before raising Series A)

What happens:

Option A: Convert to equity (most common)

  • Note converts to equity immediately before acquisition closes
  • Conversion based on acquisition price or valuation cap (whichever better for investor)
  • Note holder participates in acquisition payout as common stockholder

Example math:

  • Acquisition price: $20M
  • Total shares outstanding: 10,000,000
  • Implied price per share: $2.00
  • Note converts using $6M cap: $6M / 10M shares = $0.60/share
  • Note holder gets: $500K / $0.60 = 833,333 shares
  • Note holder payout: 833,333 shares × $2.00 = $1,666,666
  • Return: 3.3x return on $500K investment

Option B: Cash repayment (less common)

  • Some notes include 1x-2x repayment on change of control
  • Investor gets paid $500K-$1M in cash (not equity)
  • Simpler but less upside for investor

Scenario 3: Maturity with No Qualified Financing

Setup:

  • Raised $750K via convertible notes (18-month maturity)
  • Maturity date arrives, you haven't raised Series A yet

What happens:

Option A: Extension (most common, 80% of cases)

  • Request 6-12 month maturity extension
  • Investors usually grant extension (they want company to succeed)
  • May offer slightly better terms (lower cap) as "thank you"

Option B: Convert at current valuation (15% of cases)

  • Investor and founders agree on valuation
  • Note converts to equity at agreed price
  • Creates small preferred round or converts to common

Option C: Repayment demand (rare, 5% of cases)

  • Investor demands principal + interest repayment in cash
  • Startup usually can't afford this
  • May force bridge round, asset sale, or liquidation
  • Nuclear option (damages relationship)

Practical advice: Communicate early (3-6 months before maturity) if you need extension. Investors prefer transparency over surprises.

Convertible Note Documents Checklist

When raising money via convertible notes, you'll need these documents:

1. Convertible Promissory Note

What it is: The core legal document creating the debt and defining terms

Key sections:

  • Principal amount
  • Interest rate and accrual method
  • Maturity date
  • Conversion triggers and mechanics
  • Valuation cap and discount rate
  • Events of default
  • Investor representations

Who signs: Company (authorized officer) and each investor

2. Board Consent (Resolution)

What it is: Board approval to issue convertible notes

Required for: All convertible note issuances

Key approvals:

  • Authorization to issue up to $[X] in convertible notes
  • Approval of note terms
  • Designation of officers to execute notes
  • Amendment to option pool if needed

3. Subscription Agreement (Optional)

What it is: Separate agreement defining investor obligations and company representations

Common in: Larger rounds ($1M+)

Key sections:

  • Investor accredited status representations
  • Company business overview and risk factors
  • Securities law compliance
  • Right of first refusal or pro-rata rights

4. Cap Table Update

What it is: Updated capitalization table showing convertible notes

Required information:

  • Investor name and principal amount
  • Interest rate and accrued interest
  • Maturity date
  • Conversion terms (cap, discount)
  • Pro forma fully diluted share count if notes converted

5. Investor Side Letter (Optional)

What it is: Side agreement with specific investor covering special terms

Use cases:

  • Pro-rata rights for specific investor
  • Board observer rights
  • Information rights
  • Most favored nation clause

Warning: Try to avoid side letters—they create complexity and inequality among investors.

Tax Implications of Convertible Notes

For Startups (Companies)

Interest expense:

  • Accrued interest on convertible notes may be tax-deductible
  • Consult tax advisor on proper treatment
  • Deduction usually taken when interest converts (not during accrual)

Conversion event:

  • Conversion from debt to equity is generally not taxable event
  • Treated as exchange of debt for stock

Forgiveness of debt:

  • If investor forgives debt (rare), may trigger cancellation of debt income (taxable)

For Investors

Original Issue Discount (OID):

  • Convertible notes may be treated as having OID for tax purposes
  • Investors may need to recognize interest income annually (even though not paid in cash)
  • Complex tax treatment—consult tax advisor

Conversion to equity:

  • Conversion generally not taxable
  • Investor's basis in stock = original investment + accrued OID income recognized

Sale or repayment:

  • If note repaid in cash, investor recognizes capital gain/loss
  • Holding period determines short-term vs long-term treatment

Important: Both companies and investors should consult tax advisors on convertible note tax treatment. Tax rules are complex and fact-specific.

Resources & Next Steps

Free Tools & Templates

📄 SAFE vs Convertible Note Comparison - Side-by-side comparison tool 📄 Convertible Note Template - YC-style convertible note documents 📄 Conversion Calculator - Model different conversion scenarios

Related Guides

📚 SAFE Notes Guide - Alternative to convertible notes (no interest, no maturity) 📚 Cap Table Guide - How to track convertible notes on your cap table 📚 409A Valuations - Required after convertible note conversion 📚 Series A Prep - Preparing for priced equity round

Legal Support

Need help with convertible note fundraising?

Promise Legal helps startups structure and execute convertible note rounds, from term negotiation to document drafting to cap table management.

Schedule Free Consultation →

What we can help with:

  • Convertible note term sheet negotiation
  • Document preparation and review
  • Board resolutions and corporate governance
  • Cap table modeling and dilution scenarios
  • Conversion mechanics at Series A
  • Maturity extension negotiations

Key Takeaways

✅ Convertible notes = short-term loans that convert to equity at your next priced round ✅ Key terms: Principal, interest rate (5-8%), maturity date (18-24 months), valuation cap, discount (20%) ✅ Interest accrues but isn't paid in cash—adds to conversion amount ✅ Valuation cap protects investors if your valuation increases significantly ✅ Discount rate rewards early risk (15-25% discount vs Series A price) ✅ Maturity date creates deadline to raise priced round (but extensions usually granted) ✅ Different from SAFEs: Convertible notes have interest + maturity (SAFEs don't) ✅ Use for seed/bridge rounds: Best for raising $250K-$1M between formation and Series A ✅ Track accrued interest: Update cap table quarterly with current interest amounts ✅ Model conversion scenarios: Understand dilution impact before Series A

Bottom line: Convertible notes let you raise money quickly without setting a valuation, rewarding early investors with discounts and caps while deferring the valuation discussion until your startup has more traction. They're slightly more complex than SAFEs (due to interest and maturity) but remain popular among traditional angel investors and for bridge rounds.

This guide provides general information only and does not constitute legal, financial, or tax advice. Consult with qualified legal, financial, and tax advisors for guidance specific to your situation.

Last updated: September 29, 2025

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