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Convertible Note Purchase Agreement
Establish clear terms for debt financing that can convert to equity with this Convertible Note Purchase Agreement Template.
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Convertible Note Purchase Agreement Template
This Convertible Note Purchase Agreement (“Agreement”) is entered into on [Date], by and between:
Company (Issuer): [Company Name]
Address: [Address]
Phone: [Phone Number]
Email: [Email Address]
Investor (Purchaser): [Investor Name or Entity]
Address: [Address]
Phone: [Phone Number]
Email: [Email Address]
Together referred to as the “Parties.”
1. Purchase and Sale of Notes
The Company agrees to issue and sell to the Investor, and the Investor agrees to purchase, convertible promissory notes (the “Notes”) in the aggregate principal amount of $[Amount].
2. Interest
The Notes shall accrue interest at an annual rate of [X]%, compounded annually, until conversion or repayment.
3. Maturity Date
The Notes shall mature on [Maturity Date]. If conversion has not occurred by that date, the principal and accrued interest shall become payable unless otherwise agreed.
4. Conversion Terms
Upon a qualified financing event of at least $[Amount], the Notes and accrued interest shall automatically convert into equity securities of the Company at:
Discount Rate: [X]% of the price paid by new investors.
Valuation Cap: $[Valuation Cap].
If no qualified financing occurs before the Maturity Date, the Investor may elect to convert or demand repayment.
5. Optional Conversion
The Investor may voluntarily convert the Notes into equity at any time prior to the Maturity Date at the terms set forth above.
6. Use of Proceeds
The Company agrees to use the proceeds exclusively for business development, operations, and growth as described in Exhibit A.
7. Representations and Warranties
Company Representations:
The Company is duly organized, validly existing, and authorized to issue the Notes.
No conflicts exist that would prevent execution of this Agreement.
Investor Representations:
The Investor is an accredited investor with full authority to purchase the Notes.
The Investor understands the risks of early-stage investments.
8. Investor Rights
The Investor shall receive the same rights and preferences afforded to future equity investors, including information and reporting rights, unless otherwise agreed.
9. Events of Default
The following shall constitute an Event of Default:
Failure to pay principal or interest when due.
Bankruptcy or insolvency of the Company.
Breach of material obligations under this Agreement.
Upon default, the Investor may demand immediate repayment of all amounts owed.
10. Governing Law
This Agreement shall be governed by and construed under the laws of [State/Country].
11. Entire Agreement
This Agreement represents the entire understanding between the Parties and supersedes all prior negotiations or communications.
Signatures
Company Signature: ____________________________ Date: _________
Printed Name & Title: _________________________________________
Investor Signature: ____________________________ Date: _________
Printed Name & Title: _________________________________________
Details
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Convertible Note Purchase Agreement
CONVERTIBLE NOTE PURCHASE AGREEMENT FAQ
What is a Convertible Note Purchase Agreement?
A Convertible Note Purchase Agreement is a financing document used by startups and investors where the investor provides a loan to the company that later converts into equity, usually during a future financing round.
Why is a Convertible Note Purchase Agreement important?
It simplifies early-stage fundraising by deferring valuation negotiations, while protecting investors with conversion rights and companies with structured repayment and investment terms.
When should you use a Convertible Note Purchase Agreement?
Use it when raising seed or bridge financing from angel investors or venture capitalists, particularly when company valuation is uncertain or evolving.
What should a Convertible Note Purchase Agreement include?
It should outline purchase terms, interest rates, maturity date, conversion triggers, discount rates, valuation caps, and investor rights.
How does conversion work?
The debt converts into equity shares when a qualifying financing event occurs, usually at a discount or capped valuation to reward early investors for their risk.
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