There are three ways a Convertible Note converts to equity.

The note matures and converts to equity on the maturity date.

The startup raises a follow-on funding round in equity that counts as qualified funding.

The startup sells the business.

In each case, the note converts to equity.

If the convertible note does not have a maturity date, then it can stay in debt for the life of the note.

This may be a problem for the startup as the investor could demand their funds back.

Most convertible notes have an interest rate, so that would be an additional amount on the demand.

In signing a convertible note, check to see if all the conversion provisions are clearly laid out.

If there’s no maturity date, then ask to put one in.

These are most often at year 3 or 5.

Convertible notes make for a great way to start a fundraiser.

Make sure you know the potential outcomes for the convertible note you are signing.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
________________________________________________________________________

Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.
For more episodes from Investor Connect, please visit the site at: http://investorconnect.org
Check out our other podcasts here: https://investorconnect.org/
For Investors check out: https://tencapital.group/investor-landing/
For Startups check out: https://tencapital.group/company-landing/
For eGuides check out: https://tencapital.group/education/
For upcoming Events, check out https://tencapital.group/events/
For Feedback please contact info@tencapital.group
Please follow, share, and leave a review.
Music courtesy of Bensound.

Copyright (c) 2025, Hall Martin and investorconnect.org. All rights reserved.

Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.