A convertible note is legally structured as debt — it accrues interest and has a maturity date — but everyone involved generally intends for it to convert into shares rather than actually be repaid in cash. Notes typically include a valuation cap and/or a discount rate that rewards the note holder for investing early, before the company’s value has been formally priced, by converting their money into equity at a better rate than the next round’s official price.

Convertible notes are popular for pre-seed, seed, and bridge financing because they’re faster and cheaper to draft than a full priced equity round, letting a startup close a small round of funding without first negotiating an exact valuation. A nuance worth knowing: because a note is technically a loan, an unconverted note approaching its maturity date can create real pressure — the company may technically owe repayment or interest — which is exactly the friction that a SAFE (which has no maturity date or interest) was designed to remove.

🇵🇭 Philippine Example

Convertible notes are used by some Philippine startups as bridge financing between priced rounds, but they need to be structured carefully under Philippine corporate and tax rules — including how any accrued interest and documentary stamp tax are treated — so many local startup lawyers still favor a straightforward priced equity round for a company's core institutional financing. No specific, unambiguous public example of a named Philippine convertible note round could be confidently verified for this entry, so this example is kept general rather than citing an unconfirmed deal.

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