A Convertible Note is a debt instrument that can be converted into equity automatically upon certain conditions and/or at the option of the holder or the issuer. Although not the main purpose of investing in Convertible Notes, they do earn interest, and 2-8% is standard. Usually, the investor will convert the principal of the note plus the interest automatically into equity when an institutional investor (such as a Venture Capitalist) makes an investment of a certain threshold amount. Convertible Notes are generally converted into equity with a conversion discount or price cap mechanism.
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