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A Convertible Loan Note lets investors lend money to a startup with the option to convert that loan into shares later, typically during a future funding round. In Nigeria's growing tech ecosystem, these notes have become popular because they help young companies raise funds without setting a firm valuation right away.

Under Nigerian corporate law, these notes must specify key terms like the interest rate, conversion triggers, and discount rates. They're particularly useful for early-stage Nigerian startups when traditional equity investment might be premature or when founders want to delay valuation discussions until they have more traction. The Corporate Affairs Commission recognizes these instruments as valid debt securities that can convert to equity.

Use a Convertible Loan Note when your Nigerian startup needs quick funding but isn't ready to set a firm company valuation. This works especially well during your seed round or bridge financing, where traditional equity investment might be too complex or premature. The note gives you flexibility to delay valuation discussions until you have more market traction.

These notes prove particularly valuable when dealing with foreign investors under Nigeria's foreign investment regulations, as they simplify the initial investment process. They're also ideal when you need to close funding quickly, or when different investors disagree about your company's current value. The conversion terms protect both parties while postponing potentially difficult valuation negotiations.

• Standard Convertible Notes: Basic structure with fixed interest rate and maturity date, commonly used by Nigerian tech startups
• Discount-Only Notes: Offers conversion discount without valuation cap, popular among early-stage companies
• Capped Notes: Includes maximum conversion valuation, protecting investor interests while offering founder flexibility
• Interest-Free Notes: Structured without interest payments but higher conversion discounts, suited for quick bridge rounds
• Foreign Investment Notes: Modified to comply with Nigerian foreign investment regulations, including specific forex provisions

• Startup Founders: Sign and issue Convertible Loan Notes to raise capital while maintaining control over company valuation
• Angel Investors: Provide early-stage funding through these notes, gaining potential equity at a discount
• Corporate Lawyers: Draft and review notes to ensure compliance with Nigerian investment laws and protect client interests
• Company Secretaries: Handle documentation, filing, and corporate governance requirements for note issuance
• Investment Advisors: Guide both founders and investors on terms, valuations, and conversion mechanics

• Company Details: Gather current registration documents, shareholding structure, and director information
• Investment Terms: Define loan amount, interest rate, maturity date, and conversion discount or valuation cap
• Regulatory Compliance: Check current SEC guidelines and CAC requirements for note issuance in Nigeria
• Conversion Triggers: Specify qualifying funding rounds, exit events, or other conditions that enable conversion
• Investor Information: Collect KYC documents and confirm investor status under Nigerian investment laws
• Board Approval: Secure necessary corporate authorizations and document them properly

• Loan Terms: Principal amount, interest rate, and maturity date clearly stated
• Conversion Rights: Detailed mechanics of how and when the loan converts to equity
• Valuation Terms: Conversion discount percentage and/or valuation cap specifications
• Event Triggers: Qualifying financing rounds, exit events, and default scenarios
• Party Details: Complete legal names, addresses, and registration numbers of company and investor
• Governing Law: Explicit reference to Nigerian law and jurisdiction
• Execution Block: Signature spaces for authorized representatives with company seal requirements

A Convertible Loan Note differs significantly from a Loan Agreement in several key aspects under Nigerian law. While both involve lending money, their purposes and outcomes are quite different.

• Investment Intent: Convertible Loan Notes are designed primarily as investment vehicles with future equity conversion rights, while Loan Agreements focus solely on debt repayment
• Interest Treatment: Convertible Notes often have more flexible interest terms that can convert to equity, whereas Loan Agreements require strict interest payment schedules
• Valuation Mechanics: Convertible Notes include specific provisions for company valuation and equity conversion, which are absent in standard Loan Agreements
• Regulatory Framework: Under Nigerian law, Convertible Notes fall under both debt and equity regulations, while Loan Agreements are purely debt instruments
• Default Remedies: Loan Agreements typically focus on repayment enforcement, while Convertible Notes offer alternative resolution through equity conversion