Raising money
Convertible note
A convertible note is a loan to your company that turns into shares instead of being paid back, usually at your next priced round.
Also called convertible, convertible debt
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Unlike a SAFE (simple agreement for future equity), it is debt: it builds up interest and has a maturity date, after which the money can technically be owed back. A priced round is one where investors buy shares at a set price.
Two terms decide how many shares the investor gets when the note converts. The valuation cap sets the highest company value the note converts at, and the discount gives the investor a lower price than new investors pay. Interest adds to the amount that converts, so a note costs more shares the longer it runs.
This is not legal or tax advice, check with a lawyer or accountant.
What recent Carta data says
On Carta, the median interest rate on convertible notes in April to June 2026 was 7%.
- Median interest rate on convertible notes, April to June 2026: 7%.
- Notes with both a cap and a discount that set the discount at exactly 20%, January 2025 to June 2026: 68.1%.
Source: Carta, State of Pre-Seed: Q2 2026. Companies and rounds on Carta, not the whole market. As of 5 November 2026.
When this shows up
Example, not a real founder: an angel offers to invest on a note instead of a SAFE. The cap and the discount match the SAFE you were offered last week, so the two look the same. The note also earns interest and has a maturity date, so by the time it converts it buys more shares, and if no priced round has happened by then, the investor can ask what happens next.
What to do next
Put the cap, discount, interest rate and maturity date of every note you hold in one table. Next to each one, write the date your next priced round would have to close before it matures.
Go deeper
Participating preferred with a 1x cap, and what it costs you
Each clause it finds explained in plain words, with the ones that may be worth raising with a lawyer pointed out.
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