Skip to content

CA Final · Advanced Financial Management · Startup Finance

Which of the following is a typical feature of a convertible note issued by an early-stage Indian startup to an investor?

A convertible note is a debt instrument that later converts into equity, normally at the next priced funding round, often with a discount or valuation cap. It lets a startup raise money early without fixing a valuation immediately, unlike a bank loan or grant.

  1. AIt is a debt instrument that converts into equity at a later priced round, usually at a discount or subject to a valuation capCorrect
  2. BIt gives the investor permanent non-voting preference shares with no conversion right
  3. CIt is a grant that need never be repaid or converted
  4. DIt is a secured bank term loan repayable in equal monthly instalments

Explanation

A convertible note starts as debt and converts into equity on a trigger such as the next priced funding round, typically with a discount or cap that rewards the early investor. A bank term loan has fixed repayment and no conversion, so it is not the same instrument.

Did you get it right without looking?

One question tells you little. A timed set on Startup Finance shows your real accuracy, how long you take and where you lose marks.

Practise Startup FinanceFree diagnostic mock

More Startup Finance questions