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A Convertible Agreement lets early-stage investors fund a startup now while deciding the investment terms later. It works like an IOU that converts into shares when specific events happen, usually during the next major funding round or IPO. This popular tool in Canadian venture capital helps companies raise quick cash without setting a firm company value upfront.

These agreements typically include key terms like the discount rate, valuation cap, and trigger events for conversion. Under Canadian securities law, they count as securities and must follow provincial regulations for exempt market dealings. Startups often prefer them over straight equity deals because they're faster to close and defer tricky valuation discussions.

Use a Convertible Agreement when your startup needs quick capital but setting a firm valuation feels premature. This tool works perfectly during early stages when your company's worth is hard to determine, or when you need to close funding faster than a traditional equity round allows.

The agreement makes sense for bridge funding between major rounds, especially in rapidly growing tech companies where traditional valuation methods fall short. Canadian startups often turn to these agreements when dealing with angel investors or accelerator programs, since they simplify negotiations and defer complex valuation discussions until the next significant funding milestone.

• Convertible Note Contract: Basic startup-friendly format offering debt that converts to equity, typically used for seed funding
• Compulsory Convertible Debentures Agreement: Mandatory conversion structure common in larger deals, converts automatically at predetermined events
• Convertible Bond Agreement: More formal instrument often used by established companies, includes interest payments and specific conversion terms
• Loan Conversion Agreement: Transforms existing debt into equity, popular for restructuring or consolidating previous investments
• Loan Conversion To Equity Agreement: Specifically designed for direct debt-to-equity swaps with detailed share allocation terms

• Startup Founders: Draft and negotiate these agreements to secure early funding while maintaining flexibility on valuation and control
• Angel Investors: Provide initial capital through Convertible Agreements, often leading the investment terms and negotiations
• Venture Capital Firms: Use these instruments for bridge financing or to participate in early rounds before formal equity investments
• Corporate Lawyers: Structure and review agreements to ensure compliance with Canadian securities laws and protect client interests
• Financial Advisors: Guide clients on conversion terms, valuation caps, and investment timing strategies
• Securities Regulators: Oversee compliance with provincial exempt market regulations and investor protection rules

• Company Details: Gather incorporation documents, shareholder information, and current capitalization table
• Investment Terms: Define the investment amount, valuation cap, discount rate, and interest rate (if applicable)
• Conversion Triggers: Specify qualifying financing thresholds, maturity dates, and other conversion events
• Securities Compliance: Confirm exemptions under Canadian securities laws for your specific offering
• Investor Rights: Outline voting rights, information rights, and pro-rata participation rights
• Document Generation: Use our platform to create a legally sound Convertible Agreement that includes all required elements
• Review Process: Have key stakeholders review terms before finalizing the agreement

• Parties Section: Full legal names and addresses of both investor and company, including registration details
• Investment Terms: Principal amount, interest rate, maturity date, and any specific repayment conditions
• Conversion Rights: Detailed mechanics for converting debt to equity, including valuation cap and discount rate
• Qualifying Events: Clear definitions of events triggering automatic or optional conversion
• Securities Compliance: References to relevant exemptions under Canadian securities regulations
• Representations: Company and investor warranties about legal status and authority to enter agreement
• Governing Law: Specification of applicable provincial jurisdiction and dispute resolution process
• Amendment Terms: Procedures for modifying agreement terms with proper consent

A Convertible Agreement differs significantly from a Convertible Loan Note in several key aspects, though both are investment instruments used in Canadian startup funding. The main distinction lies in their structure and legal treatment.

• Legal Classification: Convertible Agreements function as investment contracts with flexible terms, while Convertible Loan Notes are debt instruments with more rigid lending requirements under Canadian banking regulations
• Documentation Requirements: Convertible Agreements typically need less extensive documentation and can be executed more quickly, whereas Loan Notes require formal debt registration and more detailed term sheets
• Interest Treatment: Loan Notes must specify interest rates and payment schedules, while Convertible Agreements often skip interest provisions entirely
• Conversion Mechanics: Agreements offer more flexible conversion terms and triggers, while Loan Notes usually have stricter conversion parameters tied to specific events