Leta blog: What is a convertible loan?
07 November 2019Convertible Loan — is a financial instrument typically used for investments in early-stage companies and startups. However, many entrepreneurs still don’t know what it is and how it works.
A VC fund or an angel investor usually invests in early-stage companies via a convertible note and when a company raises the next round, investors convert that note into equity. In most cases, the conversion happens at a discounted valuation (valuation for early investors is less than for new investors) or with a predefined valuation (Cap) which is less than in the next funding round. It serves as a reward for the early investor.
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