Convertible Debt

Definition

A form of debt financing that gives the lender the option to convert the outstanding principal — and accrued interest — into equity at a predetermined or formula-driven price, typically triggered by a qualifying financing event. Convertible debt is widely used in early-stage financing because it defers the valuation discussion, is faster to execute than priced rounds, and offers lenders downside protection through debt priority in the event of a non-conversion outcome.