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Convertible Promissory Note
An interest-bearing convertible note with maturity date, valuation cap and/or discount, and automatic + optional conversion, for investors who want debt protection before conversion.
What is a Convertible Promissory Note?
A Convertible Promissory Note is an interest-bearing note with a maturity date, a valuation cap and/or discount, and automatic + optional conversion. It suits investors who want debt protection before conversion.
Built for founders whose investors prefer a note over a SAFE (interest accrues, there's a maturity date, and it sits as debt until conversion), and small businesses raising bridge capital. It gives the investor more protection than a SAFE and adds complexity in return.
Convertible Promissory Note template, current for 2026
Modern automatic-conversion threshold, clean maturity mechanics (convert-at-maturity vs. repay election), post-money-style cap option, QSBS/holding-period awareness (the note's conversion resets the clock), CTA/BOI acknowledgment, and e-signature/RON readiness.
How HDAi does this differently
Unlike a static form, HDAi runs a guided interview and assembles your Convertible Promissory Note as you answer. When you want it finished, a licensed Hart David Carson attorney reviews it and tailors it to your facts before you sign. The interview and the first draft are automated. The judgment belongs to an attorney.
What you’ll be asked
A short interview in plain language that asks only what this document needs.
- Who is the company issuing this note (the borrower)? This is the startup or company that receives the money and promises to repay or convert it. We capture the legal name, entity type, and state of formation.
- Who is the investor lending the money (the holder)? The person or fund advancing the funds. They hold the note until it is repaid or converts into equity.
- What is the principal amount of this note (the investment)? The dollar amount the investor is lending. This is the base that accrues interest and converts into shares.
- What is the issue (effective) date of the note? The date the note is signed and funds are advanced. Interest typically begins accruing from this date.
- What is the annual interest rate (as a percent)? Convertible notes are debt, so they accrue interest until conversion or repayment. Startup notes commonly range from 2% to 8% simple interest.
- Is interest simple or compounded? Simple interest accrues only on principal; compounded interest accrues on principal plus accrued interest. Most seed notes use simple interest.
- What is the maturity date? The deadline by which the note must convert or be repaid if no qualified financing has occurred. Commonly 18 to 36 months from issuance.
- How should conversion pricing be protected: cap, discount, or both? The valuation cap sets a maximum price at which the note converts; the discount gives the investor a percentage off the next round's price. Many notes use both and the investor gets whichever is better.
- What is the valuation cap? The maximum company valuation used to price the investor's conversion, protecting early money if the next round prices high. Enter the pre-money (or post-money) cap in dollars.
- Is the valuation cap pre-money or post-money? Post-money caps (YC-style) fix the investor's ownership percentage; pre-money caps are the older convention. This affects dilution math significantly.
- What is the conversion discount (as a percent off the round price)? The investor buys next-round shares at this percentage below what new investors pay. Typically 10% to 25%.
- What minimum new-money amount triggers automatic conversion (Qualified Financing threshold)? An equity round of at least this size automatically converts the note into that round's preferred stock, so the note converts only on a real, priced financing.
- What happens at maturity if no Qualified Financing has occurred? If the note reaches maturity without converting, the parties need a default rule: repay in cash, convert to equity at the cap, or require holder election.
- If it converts at maturity, into what security (e.g., Common Stock, Seed Preferred)? Names the class of stock the note becomes at maturity conversion so the equity mechanics are unambiguous.
- What happens on a change of control / acquisition before conversion? If the company is acquired before the note converts, the investor needs a defined payout, often a repayment premium or the option to convert first.
- What is the change-of-control premium multiple (e.g., 1.5x, 2x)? The multiple of principal (plus interest) the investor receives if the company is acquired before conversion. Common values are 1x to 2x.
- Include a Most Favored Nation (MFN) provision? An MFN lets this investor adopt more favorable terms if the company later issues notes on better terms. Common when notes are issued in a series over time.
- May the company prepay the note before maturity? Convertible notes usually restrict prepayment so the investor keeps the conversion upside; some allow it with investor consent.
- Is the note secured or unsecured? Most seed convertible notes are unsecured. A secured note grants the investor a lien on company assets and requires additional collateral documentation.
- How should this note rank against senior (bank / venture) debt? Under a subordination clause the holder agrees to sit behind a bank or venture-debt lender. Under a negative pledge the company is instead restricted from taking on senior debt without the holder's consent. Either way a dollar basket caps the exposure.
- What is the senior-debt basket (maximum senior / borrowed-money debt allowed, in dollars)? The dollar ceiling of senior or borrowed-money indebtedness the company may have outstanding without the holder's consent. Above this the holder must consent. A common seed-stage figure is a modest working-capital or venture-debt line.
- Grant the investor pro rata (participation) rights in the next round? A pro rata right lets the investor invest additional money in the qualified financing to maintain their ownership percentage. It expires at the qualified financing or on conversion.
- Should the pro rata right be limited to 'major investors' above a dollar threshold? Limiting pro rata rights to larger holders keeps the cap table manageable and mirrors NVCA practice. Choose no to give every holder the right, whatever their check size.
- What is the major-investor threshold (minimum original investment, in dollars)? The minimum amount originally invested under this note for the holder to qualify as a major investor entitled to pro rata rights. Common thresholds range from $50,000 to $250,000.
- Which state's law governs the note? Sets the legal framework for interpreting and enforcing the note. Often Delaware or the company's home state.
- How are disputes resolved? Determines whether disputes go to court or binding arbitration, and where.
- What is the venue (city/county) for disputes? The specific location where litigation or arbitration will take place.
- Name of the person signing for the company The officer executing the note on the company's behalf.
- Title of the company signatory Their office (e.g., CEO, President) to confirm signing authority.
- For the securities legend, which state's blue-sky note should appear (optional)? Adds a state-specific securities legend alongside the standard federal Securities Act legend. Leave blank to include only the federal legend.
Frequently asked
About the Convertible Promissory Note and how HDAi works.
What is a Convertible Promissory Note? +
A Convertible Promissory Note is an interest-bearing note with a maturity date, a valuation cap and/or discount, and automatic + optional conversion. It suits investors who want debt protection before conversion. Founders use it when their investors prefer a note over a SAFE (interest accrues, there's a maturity date, and it sits as debt until conversion), and small businesses use it to raise bridge capital. It gives the investor more protection than a SAFE and adds complexity in return.
Is HDAi's Convertible Promissory Note legally binding? +
The Convertible Promissory Note HDAi generates is a professionally drafted document that becomes binding once it is completed, reviewed, and properly signed. If you want a licensed Hart David Carson attorney to finish it, book a planning call. The firm's flat-fee packages, the Illinois Family Plan and Company Launch, cover the most common needs; for any other draft, an Illinois attorney will tell you on the call what finishing it would involve.
Do I need a lawyer to use this Convertible Promissory Note? +
You can generate and download the Convertible Promissory Note in minutes, free of charge. A licensed Hart David Carson attorney can then review the cap, the discount, and the maturity fallback against your cap table and your investors' expectations before you sign, which no template can do.
What makes this Convertible Promissory Note current for 2026? +
Modern automatic-conversion threshold, clean maturity mechanics (convert-at-maturity vs. repay election), post-money-style cap option, QSBS/holding-period awareness (the note's conversion resets the clock), CTA/BOI acknowledgment, and e-signature/RON readiness.
How long does the Convertible Promissory Note take? +
Estimated time about 15 min (30 questions), depending on how much you already know. The document assembles as you answer. Export it as PDF or Word, or send it to a Hart David Carson attorney for review.
Does this Convertible Promissory Note work in my state? +
HDAi's interview is state-aware. If you ask an attorney to finish the draft, a licensed Hart David Carson attorney confirms it against your state's requirements before you rely on it. Validity and required formalities vary by state.
Other jurisdictions
The same document, drafted for another jurisdiction’s law.
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