Angel financing often occurs at such an early stage in the business that it is difficult to assess a value for the firm. Angel investors often circumvent this problem by holding a convertible note
A convertible note is basically:
👉 “I’ll give you money now… 👉 and later, instead of getting paid back in cash, I’ll turn it into shares (equity).”
So it starts like debt, but turns into ownership later.
Let’s say:
You invest $10,000 early via a convertible note Later, the startup raises money at $1 per share
New investors:
Pay $1 per share
You (angel investor with 20% discount):
Pay $0.80 per share
So your $10,000 gets:
12,500 shares instead of 10,000 🎉