Convertible notes also known as convertible promissory notes
(“Notes“) are a form of debt
instruments that convert from debt to equity upon the occurrence of
a predetermined conversion event or lapse of a fixed time period,
and often at a predetermined conversion rate. Notes are often
issued by start-ups as a form of raising capital in their early
stages, in exchange for equity being offered to the investor and to
be provided at a later stage.
In the recent decade, Notes have become increasing popular among
start-ups due to the advantages that this debt instrument offers.
The primary reason is that Notes allow the start-up entity to
procure investment in its early stages and not have to worry about
the valuation of the company at the time of issuing Notes. A few
other reasons making this form of procuring investment attractive
are the simplicity and streamlined nature of the procedure, the
flexibility in terms of investing, and lower regulatory thresholds.
This
