What is Maturity Date?
Maturity date is when a convertible note comes due. If the note hasn't converted by then, the company technically owes the principal plus accrued interest as debt.
What Happens at Maturity?
Options include: automatic conversion at cap valuation, note extension, repayment (rare for startups), or negotiated resolution. Most investor-friendly notes convert rather than demanding repayment.
Maturity Risk
Hitting maturity without raising can create leverage for note holders. Some may demand unfavorable conversion terms. Set maturity 18-24 months out to allow time for your next round.
Formula
Typical maturity structures:
- Term: 18-24 months
- Extension: Often 6-12 months automatic or by mutual agreement
- Auto-convert: At cap if qualified financing doesn't occur
Example
Note terms: $400K, 18-month maturity, $6M cap.
Scenario 1: Raise Series A at month 12.
Note converts at Series A terms with discount/cap.
Scenario 2: No raise by month 18.
Note converts at $6M cap valuation (forced conversion).
Founder avoids debt repayment but at predetermined terms.