A Convertible Note is a loan instrument, but upon the occurrence of an "Equity Financing" - such as raising money from VCs - the note will convert into equity. This particular note contemplates a discount as a concession to note purchasers. Other concessions include a valuation cap and/or warrants, which this note does not consider. There are two pieces to this document: 1) the Note Purchase Agreement and 2) the Note. This is similar to a Stock Purchase Agreement and the underlying Stock Certificate, which symbolizes the actual stock held by the purchaser. The Note Purchase Agreement contains many of the key terms of the Note. This is especially helpful if you have multiple people purchasing Notes under the same agreement and you need to make an amendment - there is a governing umbrella agreement that can be amended vs. having to amend.
A Convertible Note Purchase Agreement (CPA) is a legal agreement between a company and an investor for the purchase of a debt instrument known as a convertible note. A convertible note is an alternative form of financing that allows the investor to convert the debt into equity at a later date. The CPA outlines the terms and conditions of the convertible note, including the amount of the investment, the maturity date, the interest rate, and the conversion rate. There are two types of Convertible Note Purchase Agreement; the Simple Term Note and the SAFE (Simple Agreement for Future Equity). The Simple Term Note is a traditional debt instrument that pays a fixed interest rate and is due on a specified date. The SAFE is a non-dilutive financing instrument that does not bear interest or have a maturity date, instead, the investor has the right to convert the debt into equity at a pre-defined price.
A Convertible Note Purchase Agreement (CPA) is a legal agreement between a company and an investor for the purchase of a debt instrument known as a convertible note. A convertible note is an alternative form of financing that allows the investor to convert the debt into equity at a later date. The CPA outlines the terms and conditions of the convertible note, including the amount of the investment, the maturity date, the interest rate, and the conversion rate. There are two types of Convertible Note Purchase Agreement; the Simple Term Note and the SAFE (Simple Agreement for Future Equity). The Simple Term Note is a traditional debt instrument that pays a fixed interest rate and is due on a specified date. The SAFE is a non-dilutive financing instrument that does not bear interest or have a maturity date, instead, the investor has the right to convert the debt into equity at a pre-defined price.
