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A Convertible Agreement lets early-stage startups raise funds by offering investors the right to convert their investment into equity shares later. Popular among Hong Kong tech companies and SMEs, it works like a loan that transforms into company stock when specific events happen, such as a major funding round or IPO.

Under Hong Kong law, these agreements give investors flexibility while helping founders delay complex company valuations. The investment typically converts at a discount to the next round's share price, rewarding early backers for their initial risk. Many local accelerators and angel investors prefer this structure over traditional equity deals, especially for pre-revenue companies.

Consider using a Convertible Agreement when your startup needs quick funding but can't agree on a firm valuation yet. This approach works especially well for Hong Kong tech companies in their first 18 months, when revenue forecasts remain uncertain and traditional equity deals might be premature.

The agreement makes sense when you have interested investors but need to move fast without lengthy negotiations over share prices. It's particularly valuable during bridge funding rounds between major investments, or when approaching angel investors who understand the local startup ecosystem. Just ensure your corporate articles allow for future share issuance and conversion rights.

• Convertible Note Purchase Agreement: Most comprehensive version used by institutional investors, including detailed conversion mechanics and investor rights
• Convertible Note Agreement: Simplified structure popular with angel investors, focusing on core terms and basic conversion triggers
• Note And Deed Of Trust: Secured version offering additional investor protection through asset backing, common in property-backed startups
• Debt Settlement Offer Letter: Alternative structure allowing debt-to-equity conversion as part of financial restructuring

• Startup Founders: Sign Convertible Agreements to secure early funding without immediate equity dilution, typically representing their company as directors
• Angel Investors: Provide initial capital through these agreements, often participating in multiple funding rounds across Hong Kong's startup ecosystem
• Corporate Lawyers: Draft and review agreements to ensure compliance with Hong Kong company law and protect both parties' interests
• Company Secretaries: Handle document filing, maintain conversion records, and update share registers when triggers occur
• Venture Capital Firms: Use these instruments for seed-stage investments, often leading subsequent equity funding rounds

• Company Details: Gather current share structure, latest valuation, and corporate articles to confirm conversion rights are permitted
• Investment Terms: Define investment amount, interest rate, maturity date, and qualified financing threshold
• Conversion Mechanics: Determine discount rate, valuation cap, and specific trigger events for automatic conversion
• Investor Information: Collect KYC documents, proof of funds, and investment entity details per Hong Kong regulations
• Documentation: Use our platform's smart templates to generate a compliant Convertible Agreement, ensuring all key terms are properly structured
• Board Approval: Prepare directors' resolutions authorizing the agreement and future share issuance

• Investment Terms: Principal amount, interest rate, maturity date, and repayment conditions
• Conversion Rights: Detailed mechanics for share conversion, including valuation cap, discount rate, and qualifying events
• Shareholder Provisions: Future voting rights, share class specifications, and anti-dilution protections
• Representations: Company's authority to issue securities and investor's sophistication status under Hong Kong law
• Information Rights: Financial reporting obligations and investor access to company records
• Default Events: Clear triggers and remedies, including acceleration rights
• Governing Law: Explicit choice of Hong Kong jurisdiction and dispute resolution mechanisms

A Convertible Agreement differs significantly from a Bond Purchase Agreement in several key ways, though both are investment instruments under Hong Kong law. The main distinction lies in their end goals and flexibility.

• Investment Structure: Convertible Agreements are designed to convert into equity, while Bond Purchase Agreements create fixed debt obligations with scheduled repayments
• Investor Rights: Convertible Agreement holders typically gain shareholder rights after conversion, whereas bondholders remain creditors without ownership stakes
• Valuation Timing: Convertible Agreements defer company valuation until a future funding round, while bonds require immediate fixed values
• Risk Profile: Convertible Agreement investors take on greater risk for potentially higher returns through equity conversion, compared to bondholders' fixed returns
• Regulatory Framework: Convertible Agreements face lighter securities regulations in Hong Kong, making them more suitable for early-stage startups