Convertible Note

A loan that converts into equity later, with interest and a maturity date.

Also known as: convertible note, convertible loan, bridge note

A convertible note is a short-term loan to the startup that converts into equity at the next priced round — with interest accruing and a maturity date by which it must convert or be repaid. It was the standard early instrument before SAFEs; it persists where investors want debt-like protections or local law favors loan forms.

$150k note, 6% interest, 24-month maturity, $6M cap, 20% discount
→ at Series A: principal + accrued interest converts (cap or discount, whichever favors investor)
→ no round by maturity: negotiate extension, convert on agreed terms, or (rarely, badly) repay

Versus a SAFE, notes add two features founders mostly experience as downsides: interest (increases the converting balance) and maturity (a deadline that arrives whether or not the company is ready). Their virtue is familiarity — some investors and jurisdictions simply prefer documented debt.

The classic mistakes:

Ignoring maturity until it arrives. An unextended maturity converts a financing discussion into a default discussion. Calendar it at signing and start extension talks a quarter early.
Debt covenants unexamined. Some notes carry restrictions (no more debt, information rights, change-of-control terms) with real teeth. Read the whole document, not just economics.
Mixing notes and SAFEs carelessly. Different mechanics, different MFNs, different maturities — the conversion stack at pricing becomes a spreadsheet of edge cases. Standardize on one form per period where possible.
Choosing notes for the interest rate. A percent or two of interest is trivial next to valuation outcomes. Choose the instrument for simplicity and investor fit, not coupon.

Default today: SAFEs for speed and simplicity; notes where investors require them or local practice demands. Either way, cap, discount, model conversion early, and calendar every maturity.