What are convertible notes and how are they used in startup fundraising?
Quote from Angel School on April 28, 2026, 7:42 amConvertible notes are a popular financing instrument used by startups during early funding stages. They are technically a form of short-term debt that converts into equity during a future funding round rather than being repaid in cash. When investors provide money through a convertible note, they receive the right to convert their investment into company shares when the startup raises a priced equity round. These notes usually include features such as a valuation cap and a discount rate, which reward early investors for taking higher risks. Programs at Angel School often teach investors how convertible notes simplify early fundraising and help startups delay setting a valuation until the business grows further.
Convertible notes are a popular financing instrument used by startups during early funding stages. They are technically a form of short-term debt that converts into equity during a future funding round rather than being repaid in cash. When investors provide money through a convertible note, they receive the right to convert their investment into company shares when the startup raises a priced equity round. These notes usually include features such as a valuation cap and a discount rate, which reward early investors for taking higher risks. Programs at Angel School often teach investors how convertible notes simplify early fundraising and help startups delay setting a valuation until the business grows further.