A convertible note is a loan that converts to equity at your next priced round. Unlike SAFEs, notes are debt instruments with interest and maturity dates.
The annual interest that accrues on the note. Typically 2-8% for startups. This interest adds to the principal when converting.
Example: A €100K note at 5% interest for 18 months converts as ~€107.5K worth of equity.
When the note comes due. If you have not raised a priced round by then, the note holder can demand repayment or conversion.
Typical range: 18-24 months. Shorter creates pressure to raise. Longer gives more runway.
Same as SAFEs: the cap sets maximum conversion price, the discount gives a percentage off the Series A price. Investors get whichever is better.
Notes typically convert automatically on a qualified financing (e.g., raising €1M+ in Series A). May also have provisions for maturity conversion or acquisition.
| Feature | SAFE | Convertible note |
|---|---|---|
| Interest | None | 2-8% |
| Maturity | None | 18-24 months |
| Complexity | Simple | Moderate |
| Speed to Close | 1-2 weeks | 2-4 weeks |
| Best For | Pre-seed/seed | Seed (if investors prefer) |
If you have not raised a priced round by the maturity date, several things can happen:
Most common outcome. Investors extend the maturity date, often with slightly better terms for themselves.
Note converts to equity at the valuation cap, even without a new round. Depends on note terms.
Rare but possible. Investor can demand repayment. This is usually a negotiating tactic, not a real outcome.
12-month maturity creates unnecessary pressure. Negotiate for 18-24 months minimum.
Above 8% is unusual for startups. Interest compounds and increases dilution.
Know exactly what happens at maturity before signing. Automatic conversion at cap is founder-friendly.
Pitchkit helps you model convertible note conversions including interest accrual.
Get Started