TLDR:
Qualified financing is a defined threshold of fundraising specified in convertible notes or SAFE agreements that triggers automatic conversion of those instruments into equity, typically requiring a minimum investment amount.
Qualified Financing Thresholds and Negotiation
The threshold for qualified financing is one of the most important terms to negotiate in a convertible note or SAFE because it determines when automatic conversion occurs. Setting the threshold too low allows conversion into a round that is too small to properly price the company, potentially converting at a disadvantageous price. Setting it too high creates the risk that the note never automatically converts if the company raises multiple smaller rounds rather than one large institutional round.