Convertible Notes Term Sheet Template

Convertible Notes are a versatile financing option for early-stage startups, combining elements of debt and equity. This template outlines the essential elements of a Convertible Note term sheet, providing a standardized format for drafting agreements.

If you wish to learn more about Convertible Notes, check our Convertible Notes: An Overview

Key Components of a Convertible Note Term Sheet:

Principal Amount: Specifies the initial loan amount provided by the investor, which will convert into equity at a later date.
Interest Rate: Details the interest accrued on the principal amount until conversion, compensating the investor for the time value of money.
Maturity Date: Sets the date by which the loan must be repaid or converted into equity, creating a timeline for the funding round.
Valuation Cap: Establishes the maximum company valuation at which the note converts into equity, protecting the investor from excessive dilution.
Discount Rate: Provides a reduction on the price per share at the next equity financing round, rewarding the investor for their early commitment.
Conversion Trigger: Defines the events that will trigger the conversion of the note into equity, such as a qualifying funding round or an acquisition.

This template offers a comprehensive framework for drafting Convertible Note agreements, ensuring clarity and alignment between founders and investors.