Convertible Note

A convertible note is a debt agreement (loan) at the time the investment in the business is made. However, the loan balance (principal plus interest) may be converted into ownership  at a later date. Conversion may be triggered automatically when a new round of investment occurs or under other terms established by agreement. Convertible notes/debt is most often used when a business does not have an established valuation. Most often used with start-ups, because it allows the investor delay establishing a valuation until another round of investment has occurred.