Convertible notes are are often used for early stage financing because it is very difficult to determine how much the business you are investing in is worth (i.e. the valuation). A convertible note allows the business to delay this difficult task to a later date, presumably once they have some revenues or some other form of track record to base the valuation on. Then investors will be investing a discount to that valuation (to account for the fact that they invested at an earlier date.
Why use a convertible note?
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