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

In angel investing, convertible notes are popular for their simplicity and flexibility, allowing angel investors to fund startups with the option to convert into equity at a later stage. An angel investor might note, 'Convertible notes are attractive because they defer valuation and offer potential for significant returns upon conversion.'

Practice Scenarios

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.

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.