Convertible Note

Also called Note

A loan that is meant to convert into equity at your next round instead of being paid back in cash. Like a SAFE, but structured as debt, so it carries interest and a maturity date.

Why it matters

Notes were the standard before SAFEs and are still common, especially outside the US. The interest and maturity date are real obligations, so knowing how they differ from a SAFE keeps you from signing up to terms you did not mean to.

For example

An angel puts in 25 lakh on a note with an 8 percent interest rate and a 5 crore cap, converting to equity at the next priced round.

Go deeper

Convertible Notes and SAFE Notes in India: The Dilemma Bar & Bench · article A practising senior partner spells out exactly why a raw US SAFE is dangerous for an Indian entity: it can be treated as a 'deposit' and trigger a FEMA or Companies Act violation, a landmine that only detonates when you reach Series A. It then names the compliant substitutes (iSAFE via CCPS or CCD, and the DPIIT convertible note) so you know what to actually ask your lawyer to paper. Open barandbench.com →

Related terms

Also in Starting Up

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