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    Funding Stages & Instruments
    Entry
    Global · Global

    Convertible Note

    Also called: Convertible debt, Note

    TL;DR

    Short-term debt that converts into equity at a future priced round, typically with a discount, a valuation cap, and an interest rate.

    A convertible note is a loan that's intended to convert into equity rather than be repaid in cash. It carries an interest rate (typically 4 to 8%), a maturity date (usually 18 to 24 months), a discount on the next priced round (typically 10 to 25%), and often a valuation cap.

    Notes are older than SAFEs and remain common outside YC's orbit. They're slightly more complex than SAFEs because of the debt mechanics, if the note matures before conversion, the holder technically has the right to demand repayment.

    Worked example

    A $500k convertible note: 8% interest, 24-month maturity, $8M cap, 20% discount. At a $20M Series A 18 months later, accrued principal+interest = $560k. The note converts at min($8M cap, $20M × 80% discount = $16M) → at $8M cap → $560k ÷ $8M = 7% of post-conversion equity.

    Common pitfalls

    • •Letting notes mature without a conversion event.
    • •Stacking notes with conflicting cap/discount terms.
    • •Underestimating the legal cost vs a SAFE.

    When this shows up in a pitch deck

    Note terms appear in cap-table modeling rather than the deck itself, except in unusual structures.

    See Convertible Note in context

    Convertible Note shows up most often in these scoring rubrics and investor profiles, jump straight to who cares about it and how to pitch them.

    Related terms

    SAFE

    Y Combinator's Simple Agreement for Future Equity, a contract that gives an investor the right to equity in a future priced round, with no debt or interest.

    Discount Rate (Convertible)

    The percentage discount a convertible note or SAFE holder receives off the next priced round's price per share.

    Valuation Cap

    The maximum company valuation at which a SAFE or convertible note will convert into equity, protecting early investors from dilution at high prices.

    Bridge Round

    A short-term funding round between priced rounds, often a SAFE or note from existing investors, used to extend runway to the next milestone.

    MFN Clause

    A 'Most Favored Nation' provision letting an early investor automatically adopt better terms offered to any later investor on the same instrument.

    Pitch deck pillar pages

    Long-form deep dives on the slides Convertible Note most often shows up on.

    Fundraising Readiness Checklist

    Are you ready to raise? A 12-question fundraising readiness checklist: deck quality, traction milestones, valuation defensibility, investor list, data room.

    Use Convertible Note in your next pitch deck

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