Convertible Note
Definition
A debt instrument that converts to equity at a future event, typically a priced funding round. A convertible note carries an interest rate and a maturity date. At maturity, if conversion has not occurred, the note may be repayable as debt or may convert at a predetermined price depending on the instrument terms. The interest accrued on a convertible note increases the principal amount that converts, which increases dilution relative to the original principal. The cap table must reflect the accrued interest balance on all outstanding convertible notes.
Common Misapplication
The most common misapplication is modeling convertible note conversion using the original principal amount without including accrued interest. A note of two hundred thousand pounds at eight percent per annum held for two years accrues thirty-two thousand pounds of interest, increasing the conversion basis to two hundred and thirty-two thousand pounds.
FFI Standard Reference
This term is defined and applied in Book 3, Section 3.2: The SAFE and Convertible Instrument Standard.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Convertible Note. https://ffistandard.org/glossary/convertible-note/. 2026.