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A Convertible Loan Note is a type of investment where you lend money to a startup with the option to convert your loan into shares later on. It works like a regular loan, but gives you the flexibility to become a shareholder when certain events happen, like a major funding round or company sale.

In the Canadian market, these notes help early-stage companies raise capital without setting a firm company value right away. They typically include key terms like the interest rate, conversion discount (usually 15-25%), and a valuation cap that protects investors from dilution. Under Canadian securities laws, companies must ensure these notes comply with prospectus exemption requirements.

Convertible Loan Notes work best when your startup needs quick funding but determining a fair company valuation is challenging. They're particularly useful in pre-revenue stages or when you're between major funding rounds and need bridge financing to reach your next milestone.

Canadian entrepreneurs often use these notes to secure early investment from angel investors or family offices while preserving flexibility for future equity rounds. The structure helps avoid complex valuation negotiations and keeps legal costs low. They're especially valuable when you expect a significant increase in company value within 12-24 months, such as after completing product development or securing key contracts.

• Standard Convertible Notes: Basic structure with interest rate, maturity date, and conversion terms - most common for early-stage Canadian startups
• SAFE-Style Notes: Simplified convertible notes without interest or maturity date, growing popular in Canadian tech hubs
• Revenue-Based Notes: Include conversion triggers based on revenue milestones, suited for companies with predictable cash flows
• Discount-Only Notes: Focus primarily on conversion discount without valuation caps, popular among angel investors
• Capped Notes: Include both valuation caps and discounts, offering maximum investor protection in later funding rounds

• Startup Founders: Issue Convertible Loan Notes to raise capital without immediately setting a company valuation
• Angel Investors: Provide early-stage funding through these notes, gaining potential equity upside with defined protections
• Corporate Lawyers: Draft and structure the notes to comply with Canadian securities laws and protect both parties' interests
• Financial Advisors: Guide clients on investment terms, conversion mechanics, and tax implications
• Securities Regulators: Oversee compliance with provincial and federal exemption requirements for private placements

• Investment Terms: Determine key figures like loan amount, interest rate, maturity date, and conversion discount
• Company Details: Gather incorporation documents, shareholder information, and current capitalization table
• Trigger Events: Define specific conditions that will trigger conversion, like funding rounds or acquisition
• Security Requirements: Check provincial regulations for private placement exemptions and disclosure rules
• Investor Rights: Outline information rights, pro-rata rights, and any special voting privileges
• Document Generation: Use our platform to create a legally-sound note that includes all required elements and protections

• Principal Terms: Clear statement of loan amount, interest rate, and maturity date
• Conversion Mechanics: Detailed triggers, pricing formulas, and valuation caps for equity conversion
• Security Provisions: Description of any collateral or ranking relative to other debt
• Investor Rights: Information access, pre-emptive rights, and voting privileges
• Default Provisions: Consequences and remedies for payment or covenant breaches
• Regulatory Compliance: References to applicable securities exemptions under provincial laws
• Execution Block: Proper signature sections for all parties with corporate attestation requirements

A Convertible Loan Note differs significantly from a Loan Agreement in several key aspects, though both involve lending money. While a standard Loan Agreement creates a straightforward debt obligation, a Convertible Loan Note offers the unique option to convert the debt into equity.

• Repayment Structure: Loan Agreements require fixed repayment schedules, while Convertible Notes often defer repayment until conversion or maturity
• Investment Purpose: Convertible Notes aim primarily at future equity participation, whereas Loan Agreements focus on debt service and return of principal
• Risk Profile: Convertible Notes typically offer higher potential returns through equity conversion but carry more risk than traditional loans
• Documentation Complexity: Convertible Notes include additional terms for conversion mechanics and valuation, making them more complex than standard loan documents