convertible-note

Vocabulary Word

Definition

A 'convertible note' is a type of investment tool. It's a loan that can be changed into equity or ownership in a company. Think of it as lending money to a startup, but instead of getting cash back, you can get shares of the company.

Examples in Different Contexts

A convertible note is a form of short-term debt that converts into equity, typically after an investment round triggers the conversion. A startup CEO might say, 'We issued convertible notes to bridge our funding until the next major investment round, offering early investors a favorable conversion rate.'

Practice Scenarios

Law

Scenario:

It's essential all legalities are in place. The investors are considering various investment vehicles, so we should explore all our options.

Response:

Let us draft the legal terms for a convertible note, ensuring protection for both parties during its period as a loan, and after its potential conversion to equity.

Finance

Scenario:

The investment firm has shown interest in our proposition. They've mentioned the potential of changing investment to equity.

Response:

We could structure the investment as a convertible note, providing them the option to convert into an equity position during our next funding round.