I'm learning as much as possible about the funding mechanism of convertible notes. I understand that they are a loan until they convert to equity in the future once a more reasonable valuation is established. I realize they aren't given out to just everyone, and that companies who earn a convertible note are ones the investor believes will succeed based on team, product, etc. But some will still fail before their first round of funding. What happens to the convertible note?
Convertible notes are debt liability for the company, therefore the debts shall be paid as per the precedence and/or on pro-rata basis at the time of liquidation. Fee free to setup a call with me to discuss more.