Convertible Notes
Convertible notes are a form of short-term debt that converts into equity, typically in conjunction with a future financing round; in effect, the investor would be loaning money to a startup and instead of a return in the form of principal plus interest, the investor would receive equity in the company. Convertible notes are often used for seed rounds (the first investment money taken by a startup) because they delay the difficult task of deciding how much the company is worth to a later point in time when it is easier to do so.
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