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A Convertible Agreement lets investors fund early-stage Saudi companies while postponing the complex task of setting a firm valuation. Instead of immediately getting shares, investors receive the right to convert their investment into equity later, usually during the next funding round or specific milestone.

Under Saudi commercial law, these agreements help startups access quick funding while protecting both parties' interests. The conversion typically happens at a discount to the future valuation, rewarding early investors for their initial risk. Key terms include the conversion trigger events, discount rate, and valuation cap - all structured to comply with Shariah finance principles.

Use a Convertible Agreement when your Saudi startup needs quick funding but determining an exact company valuation proves challenging. This works especially well for early-stage companies with promising potential but limited operating history, making traditional equity valuations difficult or potentially unfair to founders.

This financing tool makes particular sense during rapid growth phases or when preparing for larger funding rounds in the near future. Many Saudi tech startups and innovative companies use these agreements to bridge immediate capital needs while building toward significant milestones that will better demonstrate their true value, all while maintaining Shariah compliance.

• Convertible Note Purchase Agreement: Most common startup-friendly format with flexible terms and simpler documentation requirements
• Convertible Loan Note Agreement: Structured as a formal loan with interest payments until conversion, preferred by institutional investors
• Convertible Debt Agreement: Emphasizes debt characteristics with detailed repayment terms if conversion doesn't occur
• Convertible Bond Agreement: More regulated format suitable for larger companies, often used in Sukuk-like structures
• Conversion Agreement: Focuses specifically on conversion mechanics and triggers, often used alongside other agreements

• Startup Founders: Sign Convertible Agreements to secure funding while maintaining control and postponing formal valuation of their company
• Angel Investors: Provide early-stage capital through these agreements, typically seeking higher returns through discounted future equity
• Legal Counsel: Draft and review agreements to ensure Shariah compliance and protect both parties' interests
• Financial Advisors: Structure conversion terms and advise on valuation caps that align with Saudi market conditions
• Corporate Officers: Execute agreements on behalf of established companies investing in or acquiring startups
• Shariah Advisors: Review and certify the agreement's compliance with Islamic finance principles

• Investment Terms: Determine the funding amount, valuation cap, and discount rate aligned with Saudi market standards
• Conversion Triggers: Define specific events that activate conversion, such as future funding rounds or exit events
• Company Details: Gather current capitalization, shareholding structure, and corporate registration documents
• Shariah Compliance: Ensure interest-free structures and profit-sharing mechanisms meet Islamic finance requirements
• Investor Rights: Specify information rights, participation rights, and any board observation privileges
• Documentation: Use our platform to generate a legally-sound Convertible Agreement that incorporates all these elements while ensuring local regulatory compliance

• Party Details: Full legal names, commercial registration numbers, and authorized signatories of investor and company
• Investment Terms: Principal amount, conversion price formula, and Shariah-compliant profit-sharing structure
• Conversion Rights: Detailed triggers, mechanics, and timeline for converting investment into equity
• Representations: Company's authority to issue securities and compliance with Saudi regulations
• Rights Pre-Conversion: Information access, participation rights, and corporate governance provisions
• Exit Provisions: Terms for company sale, IPO, or dissolution scenarios
• Governing Law: Explicit reference to Saudi law and Capital Market Authority regulations
• Dispute Resolution: Saudi arbitration or court jurisdiction specifications

A Convertible Agreement differs significantly from a Business Acquisition Agreement in both purpose and structure, though both involve company ownership changes. While Convertible Agreements focus on future equity rights through investment, Business Acquisition Agreements handle immediate and complete business transfers.

• Timing of Transfer: Convertible Agreements delay ownership transfer until specific future events, while Business Acquisition Agreements execute immediate ownership changes
• Valuation Approach: Convertible Agreements postpone valuation decisions, but Business Acquisition Agreements require upfront business valuation
• Risk Structure: Convertible Agreements share future growth risk between parties, while Business Acquisition Agreements typically transfer all risk to the buyer immediately
• Shariah Compliance: Convertible Agreements use profit-sharing structures, whereas Business Acquisition Agreements focus on direct asset transfer mechanisms