Convertible Note

Definition

A convertible note is debt that typically converts into equity at a future priced round. It often includes an interest rate, a maturity date, and cap/discount conversion terms.

Example

A $500k note at 6% interest converts at the better of an $8M cap or 20% discount in the next round.

How to use it

• Conversion amount may include accrued interest (terms vary).
• Conversion price may be set by valuation cap, discount, or round price (terms vary).
• Maturity terms can trigger repayment or conversion if no round happens.

Common mistakes

• Modeling interest incorrectly (simple vs compounding; check the note).
• Ignoring stacked convertibles and option pool changes when estimating dilution.
• Assuming conversion is automatic without reading maturity clauses.

Why this matters

This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.

Practical checklist

• Write a 1-line definition for "Convertible Note" that your team will use consistently.
• Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
• Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
• Use a calculator that references this term (e.g., Convertible Note Conversion Calculator) to sanity-check assumptions.
• Read the related guide (e.g., Convertible note: interest, cap/discount, and conversion basics) for context and common pitfalls.

Where to use this on MetricKit