Convertible Note Purchase Agreement Template

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Document Overview

A Convertible Note Purchase Agreement is a legal contract between a company (usually a startup) and an investor, under which the investor lends money to the company in exchange for a convertible note, a type of debt that can later convert into equity (shares) in the company, usually during a future investment round or at a set date.

It combines elements of debt financing (since it starts as a loan) and equity financing (since it can convert into shares later).

The main purposes are:

1. Provide Early-Stage Funding:
Enables startups to raise initial capital quickly without immediately fixing a company valuation.

2. Defer Valuation Negotiation:
Avoids complex valuation discussions until a later funding round, when the company’s value is clearer.

3. Offer Flexibility to Investors:
Gives investors the option to convert their loan into shares at a discount or valuation cap during a future financing event.

4. Simplify Legal Process:
Requires less paperwork and negotiation compared to an immediate share sale or equity round.

5. Protect Investor Interests:
Includes terms such as interest rate, maturity date, and conversion discount to reward early investors for their risk.

6. Support Future Fundraising:
Ensures the company can seamlessly convert early investor notes into equity during larger future raises.

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Convertible Note Purchase Agreement Template

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