A convertible note is a debt instrument that accrues interest and has a maturity date, but is designed to convert into preferred stock at the next qualified equity financing - typically at a discount to that round's price and subject to a valuation cap. Typical terms include an interest rate of a few percent, a maturity of 12 to 24 months, a discount of around 15 to 25 percent and a valuation cap. If no qualified financing occurs before maturity, holders may demand repayment or negotiate conversion or extension. Because notes are debt, they rank ahead of equity in a liquidation.

Why it matters

Convertible notes pre-date SAFEs and remain common in MedTech bridges between priced rounds, especially when a company needs runway to hit a clinical or regulatory inflection point. Because notes carry interest and a maturity date, they create real risk if the next round is delayed.

Common pitfalls

•Letting notes mature without a conversion trigger - investors can demand repayment in cash the company doesn't have.
•Stacking notes with conflicting caps and discounts that complicate the cap table.

Sources

NVCA Model Convertible Note · NVCA
Silicon Valley Bank - Healthcare Reports · SVB
PitchBook - MedTech Coverage · PitchBook
SEC capital-raising glossary: convertible notes · U.S. Securities and Exchange Commission

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Common comparison patterns

Regulatory pathway choice - 510(k) vs PMA, 510(k) vs De Novo, Abbreviated vs Special 510(k).
Quality systems - QSR vs ISO 13485, QMSR vs QSR.
Software classification - SaMD vs SiMD, Locked vs adaptive AI.
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Post-market actions - Recall vs field action, Removal vs correction.

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MedTech Terms is a vendor-neutral community resource sponsored by Blue Goat Cyber. Definitions are written for educational use and are not legal or regulatory advice.