What is a convertible note?
A convertible note is a loan to a startup that converts into equity at a later round, often at a discount or a capped price. Like other loans it carries an interest rate and a maturity date, and accrued interest adds to the shares issued at conversion. Startups often use notes in seed and bridge rounds because an early valuation is hard to pin down.
Why it matters to a revenue leader
A note is debt until it converts. If the next round slips past the maturity date, the company owes principal and interest unless noteholders agree to extend or convert, which gives them a strong hand at a bad moment. For a revenue leader, that makes the sales plan a cash plan: a missed quarter can push the company toward maturity with no round in sight.
Example
Fictitious numbersA company issues $2 million in notes with 6% interest, a 20% discount and an 18-month maturity. The Series A prices at $2.00 a share, so noteholders convert at $1.60. If the round slips to month 20, the company has to renegotiate with noteholders first.
"When do our notes mature, and how many months of sales results stand between us and that date?"
Sources
- SEC.gov | Glossary checked 9 Oct 2026
- Convertible Note - Overview, Main Advantage, Terms checked 9 Oct 2026