������Ƶ

A Convertible Loan Note is a funding tool that lets startups receive money as a loan now, with the agreement to convert that loan into shares later. German entrepreneurs often use these notes during early funding rounds because they postpone the tricky question of company valuation while still getting quick access to capital.

Under German corporate law (especially the GmbH-Gesetz), these notes typically convert to equity when the company reaches specific milestones, like a major funding round or IPO. The investor benefits from a discount on the future share price and sometimes earns interest until conversion, while the startup maintains flexibility in its early stages without immediate share dilution.

Use a Convertible Loan Note when your German startup needs quick funding but determining a fair company valuation proves challenging. This financing tool works especially well during seed rounds or bridge financing, where traditional equity investment might be premature or too complex.

The note becomes particularly valuable when you expect a significant funding round within 12-24 months. Under German investment law, it offers flexibility for both sides: investors get attractive conversion terms and potential interest payments, while founders maintain control and avoid immediate share dilution. It's also faster and less expensive than negotiating a full equity investment agreement.

• Simple Interest Notes: Most basic form offering fixed interest until conversion, popular among German angel investors for early-stage funding
• Discount-Only Notes: Provide a set discount on future share price without interest, commonly used in quick bridge rounds
• Valuation Cap Notes: Include maximum conversion valuation protection for investors, preferred by VC firms in German tech startups
• Interest-Free Notes: Pure conversion rights without interest, often used for strategic investors or family offices
• Mandatory Conversion Notes: Automatically convert at specific triggers under German corporate law, typically used in structured funding rounds

• Startup Founders: Sign and manage the Convertible Loan Note, responsible for meeting conversion conditions and reporting requirements
• Angel Investors: Provide the initial funding and negotiate conversion terms, often acting as bridge financiers
• Corporate Lawyers: Draft and review the notes, ensuring compliance with German investment laws
• Company Directors: Approve and execute the agreement on behalf of the GmbH or AG
• Notaries: Authenticate signatures and verify compliance with German corporate law requirements
• Future Investors: Consider existing notes during subsequent funding rounds when determining share allocation

• Company Details: Gather current shareholding structure, company registration number, and articles of association
• Investment Terms: Define loan amount, interest rate, and maturity date aligned with German lending regulations
• Conversion Mechanics: Specify triggering events, valuation caps, and discount rates for share conversion
• Stakeholder Agreement: Secure written approval from existing shareholders and board members
• Documentation: Prepare corporate resolutions authorizing the note issuance
• Legal Review: Our platform generates compliant notes tailored to German law, eliminating common drafting errors
• Execution Plan: Schedule notarization and coordinate signing with all parties

• Parties' Details: Full legal names, addresses, and registration numbers of lender and borrower company
• Loan Terms: Principal amount, interest rate, and maturity date according to German lending laws
• Conversion Rights: Detailed mechanics, triggers, and valuation methodology for equity conversion
• Share Classes: Specification of share types issued upon conversion under GmbH-Gesetz
• Default Provisions: Consequences and remedies for payment or covenant breaches
• Subordination: Ranking against other company debt obligations
• Representations: Company's authority to issue the note and validity of conversion rights
• Governing Law: Explicit reference to German law and jurisdiction

Convertible Loan Notes are often confused with Loan Agreements in German business practice, but they serve distinctly different purposes. While both involve lending money, their core mechanisms and outcomes differ significantly.

• Repayment Structure: Loan Agreements require cash repayment with interest, while Convertible Loan Notes typically convert to equity shares
• Investment Intent: Loan Agreements focus on debt financing, whereas Convertible Notes aim for future equity participation
• Legal Framework: Under German law, Loan Agreements follow strict banking regulations, while Convertible Notes fall under investment and corporate law
• Documentation: Loan Agreements require simpler documentation, but Convertible Notes need detailed conversion mechanisms and shareholder rights
• Risk Profile: Traditional loans offer more security for lenders, while Convertible Notes tie the return to company performance