Convertible debt is a loan an investor makes to an organization utilizing an instrument called a convertible observe. That loan could have a principal quantity , an rate of interest (usually a minimal price of 2% or so), and a maturity date . The intention of this note is that it converts to fairness (thus, “convertible”) when the corporate does an fairness financing. These notes will also often have a “Cap” or “Target Valuation” and / or a reduction. A Cap is the maximum efficient valuation that the proprietor of the notice will pay, whatever the valuation of the spherical during which the note converts.