What happens to the convertible note if it hasn't converted by the maturity date?
Takeaway: The maturity date on a convertible note is a critical deadline that can trigger a crisis; if a financing hasn't occurred, the noteholders can legally demand full repayment, forcing the founders into a difficult and often dilutive negotiation to extend the term.
The single biggest difference—and the primary strategic disadvantage—of a convertible note when compared to a SAFE is that a note has a maturity date. This is the date, typically 18 to 24 months after the investment, at which the "loan" from the investor comes due.
The entire premise of a convertible note is that the company will raise a priced equity round (a Series A) before the maturity date, which would trigger the note's automatic conversion into equity. But what happens if that doesn't occur? What if the company is making good progress but hasn't hit the milestones needed to raise a priced round, and the maturity date is fast approaching? This is a moment of significant leverage for your investors and risk for your company.
The Legal Reality: The Loan is Due
Because a convertible note is a debt instrument, upon reaching its maturity date, the full amount of the principal plus all accrued interest becomes legally due and payable in cash. For a pre-revenue startup that has been using its seed capital to fund operations, actually repaying this debt is almost always impossible. A demand for repayment would force the company into bankruptcy, an outcome where the investors would likely get nothing.
The Practical Reality: Negotiation and Extension
Because a demand for repayment is a "lose-lose" scenario, this is not what typically happens. Instead, the approaching maturity date forces the founders to go back to their noteholders and proactively negotiate a solution.
The Extension (Most Common): The most common outcome is that the founders and the investors agree to extend the maturity date for an additional period, often 6 to 12 months. This gives the company more time to hit its milestones and raise a priced round. This requires a formal amendment to the note purchase agreement, which must be signed by a majority of the noteholders.
The Price of an Extension: An extension is not automatic. The noteholders are now in a position of power, and they will often ask for a "sweetener" in exchange for agreeing to the extension. This frequently takes the form of lowering the valuation cap on the note. A note that originally had a $10 million cap might be amended to have an $8 million cap, resulting in more dilution for the founders upon conversion.
The Conversion at Maturity (Less Common): Some convertible notes are structured to automatically convert at the maturity date into shares of the company's common stock (or a new series of preferred stock) at a price based on the valuation cap. While this avoids the debt repayment crisis, it can still create a messy and complex capitalization structure if a priced round doesn't follow soon after.
The maturity date is the "ticking clock" that makes convertible notes inherently more stressful for founders than SAFEs. It creates a hard deadline that can force a difficult and dilutive negotiation if your fundraising timeline doesn't go exactly as planned.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.