Table of Contents
- 1 What is the typical maturity date for a convertible note?
- 2 What is a standard convertible note?
- 3 How do you evaluate a convertible note?
- 4 What is convertible note issued?
- 5 Do convertible notes automatically convert to equity at maturity date?
- 6 What is convertconvertible note debt?
- 7 What are the different terms in a convertible note?
What is the typical maturity date for a convertible note?
18-24 months
Convertible notes are loans and, like most loans, have a fixed maturity date at which point they are to be repaid with interest. These maturity dates vary, but typically are 18-24 months after the closing date.
What is a standard convertible note?
Standard convertible note terms are parameters for a specific form of short-term business debt. A convertible note will convert into equity at a future date, meaning that the investor loans money to an entrepreneur and receives equity in the company rather than payments on the principal plus interest.
What is the typical interest rate on a convertible note?
The convertible note interest rate can range from 2 to 8 percent. However, it stays most often in the 5 to 6 percent range. There are instances when the interest rate can range from 2 to 4 percent annually.
How do you evaluate a convertible note?
When evaluating a convertible note, there are a few key parameters that must be kept in mind:
- Discount Rate.
- Valuation Cap.
- Interest rate.
- Maturity date.
What is convertible note issued?
A convertible note is a debt instrument often used by angel or seed investors looking to fund an early-stage startup that has not been valued explicitly. Investors have the option to exchange their notes for a predetermined number of shares in the issuing company.
What is convertible promissory note?
A convertible promissory note is a debt obligation in which the company borrows money from an investor in exchange for a promise of repayment and an option to convert the outstanding principal into equity of the company upon some triggering event. They are quick, fairly simple and familiar to investors.
Do convertible notes automatically convert to equity at maturity date?
There are some convertible notes that call for automatic conversion to equity at maturity date at a pre-defined price, but these are unusual.
What is convertconvertible note debt?
Convertible note debt typically converts into equity in the next preferred round of financing, a series seed A, B, C, etc. With a conversion discount, more stock is being bought with less cash.
What are the risks associated with investing in convertible notes?
Investors always face the risk that they won’t be repaid and may lose the entire investment. Convertible notes are speculative in nature, and it is not mandatory for convertible notes to include a clause that guarantees conversion on maturity. In some cases, if a company cannot raise the appropriate equity financing, then it cannot repay the notes.
What are the different terms in a convertible note?
In this article, we provide an overview of convertible notes, as well as the three most common terms you may come across in a convertible note: interest rate, conversion discount and maturity date. Additionally, we’ll look into how they typically work and provide some hypothetical examples.