What are convertible loans?

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A convertible note is a form of short-term debt that converts into equity, typically in-line with a future financing round. In simple terms, the investor would be loaning money to a startup and instead of a return in the form of principal plus interest, the investor would receive equity in the company. A primary reason for issuing convertible notes instead of equity is that it does not force the issuer and investors to determine the value of the company when the company is in its early stages and not enough information can be provided to build a full valuation of the company.

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