Company and investment
Convertible loan agreement
Money advanced as a loan that both sides expect to become equity rather than be repaid. It is used when a company needs funding before anybody wants to argue about what it is worth, so valuation is deferred to a later round. The paper names the events that trigger conversion, the terms conversion happens on, whether interest accrues, and the fallback if no qualifying round ever arrives — repayment, conversion at a set valuation, or something else.
- In the catalogue
- Company and investment
- Where it can live
- Any of the 184 governing laws
Who uses one
- Early-stage companies raising a bridge between priced rounds.
- Angel investors putting money in ahead of a larger round.
- Existing shareholders funding a company without setting a new price.
What you are deciding
- The amount, and when it is advanced
- Whether interest accrues, and whether it is paid or converts
- What events trigger conversion
- The terms conversion happens on
- What happens on a sale of the company before conversion
- What happens if no qualifying round occurs by a long-stop date
- What rights the holder has before conversion
- Ranking against other creditors
Blanks you leave stay blank and wait in the room. Nothing is filled in from a guess.
The sections a draft usually has
- 1The parties and the advance
- 2Interest
- 3Conversion events
- 4Conversion mechanics
- 5Sale of the company
- 6Maturity and repayment
- 7Investor rights before conversion
- 8Ranking
- 9Governing law
A general outline, not a required one. What turns up in a draft follows what you described. A contract is written in the order a contract is read.
What people call it
The names this kind of paper goes by. They are here because people search for them. They also filter the catalogue. They are not a wordlist the door matches. At the composer you describe the deal in your own words instead.
- convertible loan agreement
- convertible note
- convertible loan note
- bridge financing agreement
- cln
- convertible debt agreement
Questions people ask
- Is a convertible loan debt or equity?
- It starts as debt and is intended to become equity. Until it converts it is a liability of the company, which matters for accounts, for ranking, and for what happens if the company stops trading.
- What is a maturity date doing on an instrument nobody expects to repay?
- It is the fallback. Papers of this kind name what happens if no qualifying round has arrived by then, and the answer is negotiated rather than standard.
- How is this different from an instrument for future equity?
- A convertible loan is a debt with a repayment date and usually interest; instruments for future equity are generally not debt and have no maturity. Which is appropriate depends on the company law where the company sits.
General answers about the document. Not advice about your situation. Not written about any one country.
Where it lives
A contract names the legal system it is governed by. That is a separate decision from which paper it is. You pick it at the door, from any of the 184 units in Governing law, including England and Wales, Delaware, California and New York.
You do not start from this page. Describe the deal in one sentence at the door. Read the draft back in plain language, in the order a contract is read.
Start it at the door →Related kinds