A convertible note is a form of short-term debt that converts into equity at a predefined trigger event, most commonly a priced equity round of a specified minimum size. The note accrues interest (typically 6–8% per annum) and converts at a discount (commonly 10–25%) to the price paid by new investors in the qualifying round, rewarding early investors for their risk.
Convertible notes may also include a valuation cap, which sets a ceiling on the conversion price regardless of the round valuation, protecting early backers from excessive dilution if the company's value rises sharply before conversion. They are widely used in seed and early-stage financings across Southeast Asia as a faster and lower-cost alternative to priced equity rounds.