Convertible Note

A short term debt instrument that converts to equity at a future funding round. It accrues interest and typically includes a discount rate or valuation cap that rewards early investors.

Convertible notes allow founders to raise money quickly without agreeing on a valuation. Unlike SAFEs, they are structured as debt with a maturity date, creating pressure to raise a priced round before the note comes due.

You raise £100,000 on a convertible note at 8% interest with a 20% discount. At Series A, the note converts to equity at 80% of the round price. The investor gets more shares than Series A investors paying full price.