AFO · Glossary
Convertible Note
Debt that converts into equity at a future priced round, typically with a discount or a valuation cap.
What this term means in practice
A convertible note is debt that converts into equity at a future priced round. The note carries an interest rate (usually 4–8%), a maturity date, and conversion mechanics — typically a discount (15–25%) off the next round's price, a valuation cap (a maximum effective price at conversion), or both. The investor gets credited for taking early risk by converting at a better price than the priced-round investors.
Convertible notes are useful when the founder and the early investor agree the company is worth funding but disagree on the valuation. The note defers the valuation question until the priced round, when a lead investor sets the price. They also close faster than priced rounds — there's no lengthy term-sheet negotiation, no audit, no shareholder agreement amendment.
SAFE instruments (Simple Agreement for Future Equity) are a US-popularised cousin of the convertible note: they remove the debt component entirely, keeping just the conversion mechanics. SAFEs are increasingly common in Canadian early-stage deals; the CPA models which structure produces the cleaner cap-table outcome at the next round.
Where this matters in the catalog
Programs that turn on Convertible Note.
Angel & Strategic Equity Introductions
Curated introductions to angel investors, family offices, and strategic partners for early-stage capital.
Where the definition meets your situation.
The CPA can walk through how this concept applies to your business in twenty minutes — what providers will ask, where the negotiation matters, what the trade-offs actually look like in your numbers.