Convertible debt is a loan to a startup that is designed to convert into equity (often preferred stock in the next priced financing round) instead of being repaid in cash, unless it reaches maturity or another repayment/settlement event happens.
Key terms often included:
Conversion trigger: usually the next equity financing (e.g., Series A) or a change of control.
Pricing: conversion often happens at a discount to the next round price and/or with a valuation cap.
Debt terms: typically includes interest and a maturity date.
