What is Convertible Note? Definition, requirements, and how it applies to your business formation. Learn everything about convertible note for LLCs and corporations.
# Convertible Note
A convertible note is a short-term debt instrument that converts into equity (typically preferred stock) at a future financing round. Unlike SAFEs, convertible notes accrue interest, have a maturity date, and create a legal obligation to repay if conversion doesn't occur. They include a valuation cap and/or discount rate that rewards early investors.
Convertible notes were the standard early-stage instrument before SAFEs gained popularity. They remain common outside Silicon Valley and in situations where investors want the legal protections of debt (seniority in bankruptcy, maturity date forcing a conversion or repayment event).
Lovie's fundraising tools help founders model convertible note scenarios, including interest accrual and conversion mechanics at various valuation levels.