Automatic Conversion

Automatic Conversion is a clause found in convertible promissory notes that dictates the automatic conversion of the convertible debt to the type of equity raised at a Qualified Financing*. The conversion is considered “automatic” because it does not require the vote of either the startup or the investor.

An automatic conversion can also occur regarding preferred stock of a startup before the startup’s IPO, with the automatic conversion clause converting preferred stock to common stock.

*A Qualified Financing is typically defined as an equity financing by the startup, for the purpose of raising capital, in which the aggregate of $1,000,000 (this amount can vary per deal) is purchased by investors.


Startup Law doesn’t have to be a confusing maze. The practical knowledge in "Acceleration: What All Entrepreneurs Must Know About Startup Law" will help you make the smart decisions to protect your startup and its future. Available in ebook and hardcover.

Buy the Book on Amazon