Convertible Note

A convertible note, which is a type of security, is a loan made by an investor to a company that can be converted into a different security, typically common or preferred stock. Convertible notes are often used during seed rounds because of challenges valuing a company early in its life cycle. Typically, the note will automatically convert from debt into preferred stock of the company upon the closing of the next funding round or other agreed upon conditions.

See also, What is a Security.

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The Securities Lawyer