What Is Convertible Note?

Unlike a SAFE, a convertible note is technically a loan — it has an interest rate (typically 5–8%), a maturity date (typically 18–24 months), and accrues interest that converts along with the principal. It converts to equity at the next priced round, usually with a valuation cap and/or discount rate that rewards early investors for their risk. If the company does not raise a priced round before the maturity date, the note becomes due — creating potential pressure on the company. Convertible notes were the standard pre-seed instrument before SAFEs were introduced and are still used, particularly outside the Y Combinator ecosystem or in contexts where investors prefer the note structure.

Founders taking on convertible note financing should understand both the conversion mechanics and the maturity date implications. A note coming due with no priced round in sight creates real leverage for the investor. A startup attorney can help you negotiate favorable terms and understand what you're committing to before you accept the money.