Convertible note term sheet 2025

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Convertible notes are a type of debt instrument that can be converted into equity at a future date. Often used by startups to raise early-stage funding. Key terms include: principal amount, interest rate, maturity date, conversion discount, and valuation cap.
Terms of Convertible Notes Discount rate. Valuation cap. Interest rate. Maturity date.
Typically the convertible loan note will include details of conversion on the maturity date (normally on an anniversary of the date of the convertible loan note) at an agreed pre-money valuation. A company will usually pay interest on its convertible debt at a rate of between 4% and 8% per annum.
How do you record a convertible note on a balance sheet? Classify the convertible note as a long-term liability on the balance sheet. Record the full face value of the note under long-term liabilities. Do not record any value for the conversion feature on the balance sheet initially.
A term sheet is usually a non-binding agreement outlining the basic terms and conditions of the investment. It serves as a template for the convertible note for both parties. It also allows companies to design their own deals when working with investors who rely on their own standardized documents.
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The investors do not have any control or voting power when they subscribe to convertible notes. Generally a Private Limited Company is not allowed to take loan from any other person other than its directors. So by way of convertible notes a startup can take a loan from any investor for period of 5 years.
Some convertible notes have an automatic conversion at maturity. Conversion Provisions: The primary purpose of a convertible note is that it will convert into equity at some point in the future. The most common method of conversion occurs when a subsequent equity investment exceeds a certain threshold.

convertible note term sheet example