Convertible Loan Notes: Discounts, Valuation Caps and What Happens at Conversion
A convertible loan note is a loan from an investor to a company that turns into shares later, usually when the company sells shares in a priced funding round. Until it converts, it’s debt. It sits on the balance sheet as a liability, it usually carries interest, and it has a date by which it has to be repaid or converted.
Convertible loan notes, also called CLNs or convertible notes, exist because early-stage companies are hard to value. A business with little revenue and no track record gives the founder and the investor very little to agree a price on. The note lets the money go in…
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