Skip to content
The Internet Compass

Venture

Convertible Note

A convertible note is a loan that converts into equity — typically at the company's next priced financing round — rather than being repaid in cash, usually carrying an interest rate and a maturity date like conventional debt.

Because a convertible note is legally debt until it converts, it accrues interest (which increases the investor's eventual equity stake) and has a maturity date, at which point the company technically owes repayment if no conversion event has happened — a meaningful practical difference from a SAFE.

Notes were the dominant early-stage instrument before Y Combinator's SAFE format spread industry-wide; SAFEs are now more common for pre-seed and seed rounds specifically because they avoid the debt characteristics and legal overhead of a note.