A convertible note is a form of short-term debt that converts into equity, typically during a future financing round. Rather than repaying the principal with interest, the note allows the holder to receive shares in the company, usually at a discount or with other preferential terms compared to new investors. This instrument is commonly used by startups to raise initial capital quickly, as it defers the negotiation of company valuation until a later investment stage. Convertible notes serve as a bridge between early fundraising and more formal equity rounds, streamlining the process and reducing legal complexity for both founders and investors. This approach is often utilized when startup founders seek flexible solutions for early-stage financing.

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