Convertible Notes are debt instruments in Australia that allow the holder to convert the debt into company equity at a predetermined price. These notes are popular among startups for raising capital without issuing shares.
The operation of a Convertible Note in Australia consists of the following steps:
1. Investment
The Convertible Note holder invests money in the company in exchange for the note.
2. Debt instrument
The Convertible Note serves as a debt instrument, entitling the holder to receive interest on the invested amount.
3. Conversion
The Convertible Note holder has the option to convert the debt into company equity at a predetermined price, typically when the company raises capital in a future financing round or goes public.
4. Valuation cap
Some Convertible Notes feature a valuation cap, limiting the price at which the debt can be converted into equity. This protection prevents the conversion price from becoming too high if the company becomes highly successful.
5. Maturity date
Convertible Notes generally have a maturity date when the debt must be repaid if it has not been converted into equity.
In Australia, the Australian Securities and Investments Commission (ASIC) regulates Convertible Notes, which must comply with Australian law. It is crucial to seek legal and financial advice before entering into a Convertible Note agreement, ensuring compliance with Australian law and protecting both the company and the Convertible Note holder’s interests.
To learn more about Convertible Notes and their benefits for your startup, visit our website at bolter.com.au or contact us to discuss your unique situation and find the best solutions for your business.