What it is: A convertible note is a type of debt instrument commonly used in early-stage fundraising. It is a loan that can be converted into equity at a later date, typically during a subsequent funding round or upon specified events.
Why it is important: Convertible notes offer flexibility to investors and startups by deferring the valuation determination until a future milestone is reached. They provide a streamlined approach for raising funds in early stages.
How to use it in startups: Startups can use convertible notes to secure early-stage funding without determining an immediate valuation. These notes allow startups to continue operations, reach milestones, and potentially negotiate better terms in future financing rounds.