What is “convertible debt”?
Convertible debt (or convertible notes) is a financial instrument that begins as debt — the company owes the investor principal plus interest — but converts to equity at a triggering event, typically the next priced equity round. Convertible debt was the dominant early-stage financing instrument before SAFEs (2013+) and remains widely used for bridge financings and selective seed rounds.
Key economic terms
- Principal amount: the dollar amount invested.
- Interest rate: typically 4-8% per annum, simple interest, accruing until conversion.
- Maturity date: the date by which the note must convert or be repaid — typically 18-24 months from issuance.
- Valuation cap: ceiling for conversion valuation (see capped notes).
- Discount rate: typically 15-25% discount to the priced-round price.
- Conversion trigger: the qualifying financing — usually defined by minimum round size.
Convertible debt vs. SAFE
- Convertible note: is debt — accrues interest, has maturity, technically must be repaid if no qualifying round occurs.
- SAFE: is not debt — no interest, no maturity; pure equity-conversion instrument.
- SAFEs have largely replaced convertible notes in U.S. seed financings due to simplicity; convertible notes remain common outside the U.S. and for bridge financings.
What happens at maturity without conversion
If no qualifying financing happens by maturity, holders typically have options: extend the note, convert at a pre-agreed valuation, or demand repayment. Repayment is often impossible — companies that have not raised priced rounds rarely have cash to repay. The standard outcome is renegotiation, often with worse terms for the founders.
Türk pazarında convertible debt
Türk startup ekosisteminde convertible note ve SAFE giderek yaygınlaşıyor — özellikle yerel ve uluslararası seed yatırımları için. Türk OpCo seviyesinde convertible note TTK kapsamında dönüştürülebilir tahvil olarak değerlendirilir (Madde 504); ancak yapı genelde Cyprus/Delaware HoldCo seviyesinde tutulur. Vergi açısından tahakkuk eden faiz dikkatle yönetilmelidir.
Do: use convertible notes for bridge financings between priced rounds; document maturity, interest, cap and discount with the company’s existing investors aligned.
Don’t: accept convertible debt with maturity earlier than realistic priced-round timing — debt-default mechanics damage the company at the worst possible moment.