{"id":3769,"date":"2025-11-25T13:40:38","date_gmt":"2025-11-25T10:40:38","guid":{"rendered":"https:\/\/kyolegal.com\/?p=3769"},"modified":"2025-11-25T13:40:40","modified_gmt":"2025-11-25T10:40:40","slug":"startup-law-1-convertible-note","status":"publish","type":"post","link":"https:\/\/kyolegal.com\/en\/startup-law-1-convertible-note\/","title":{"rendered":"Startup Law-1 Convertible Note"},"content":{"rendered":"\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Is_a_Convertible_Note\"><\/span><strong>What Is a Convertible Note?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3><div id=\"ez-toc-container\" class=\"ez-toc-v2_0_73 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/kyolegal.com\/en\/startup-law-1-convertible-note\/#What_Is_a_Convertible_Note\" title=\"What Is a Convertible Note?\">What Is a Convertible Note?<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/kyolegal.com\/en\/startup-law-1-convertible-note\/#Why_Convertible_Notes\" title=\"Why Convertible Notes?\">Why Convertible Notes?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/kyolegal.com\/en\/startup-law-1-convertible-note\/#What_Privileges_Do_Investors_Receive\" title=\"What Privileges Do Investors Receive?\">What Privileges Do Investors Receive?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/kyolegal.com\/en\/startup-law-1-convertible-note\/#What_Happens_If_No_New_Investment_Is_Raised\" title=\"What Happens If No New Investment Is Raised?\">What Happens If No New Investment Is Raised?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/kyolegal.com\/en\/startup-law-1-convertible-note\/#The_Applicability_of_Convertible_Notes_Under_Turkish_Law\" title=\"The Applicability of Convertible Notes Under Turkish Law\">The Applicability of Convertible Notes Under Turkish Law<\/a><\/li><\/ul><\/nav><\/div>\n\n\n\n\n<p>A <strong>Convertible Note<\/strong>, a funding method increasingly used in the startup ecosystem, is essentially a form of short-term, low-interest debt financing provided to early-stage startups. This mechanism allows founders to obtain the capital they need during the initial phase, while investors gain certain privileges for the next financing round.<\/p>\n\n\n\n<p>An investor participates in the future equity round only if the startup raises new investment, and at that stage, the investor both acquires certain advantages due to the financing previously provided and shares in the privileges granted to the new investors.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_Convertible_Notes\"><\/span><strong>Why Convertible Notes?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>For very early-stage startups \u2014 even those that have not yet been formally incorporated and exist merely as an idea \u2014 determining a valuation and forecasting future performance may be extremely difficult for investors. This is precisely where the Convertible Note structure provides a significant advantage.<\/p>\n\n\n\n<p>By using a Convertible Note, the parties can proceed with financing <em>without<\/em> conducting a valuation (pre-money valuation) at the initial stage. When the startup raises its next round, the investor receives equity in proportion to the principal amount plus interest, based on the valuation determined in that round.<\/p>\n\n\n\n<p>This shortens investment processes and eliminates the lengthy due diligence stages typically required in equity investments conducted through capital increases.<\/p>\n\n\n\n<p>Speaking of efficiency, another advantage of Convertible Notes is the simplicity of documentation. Unlike equity-based investments \u2014 which require shareholder agreements (SHA), amendments to the articles of association, general assembly approvals, trade registry procedures, and lengthy contracts \u2014 a Convertible Note can be completed with a concise agreement of approximately 5 to 10 pages.<\/p>\n\n\n\n<p>Especially in companies with multiple shareholders, this provides significant practicality for both investors and founders by shortening the signing and closing processes.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Privileges_Do_Investors_Receive\"><\/span><strong>What Privileges Do Investors Receive?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>One of the most common privileges is the right to purchase shares at a discount during the future financing round. In essence, the investor is rewarded for identifying and supporting the early-stage startup and providing capital during its most vulnerable operational period.<\/p>\n\n\n\n<p>The discount rate may vary depending on negotiations and the amount of financing provided. However, one of the critical considerations here is maintaining fairness. Excessive privileges granted at the Convertible Note stage may discourage future investors or be perceived as inequitable, potentially hindering the next round.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Happens_If_No_New_Investment_Is_Raised\"><\/span><strong>What Happens If No New Investment Is Raised?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>If the startup does not raise a new investment by the maturity date, the founder is obligated to repay the principal amount, together with accrued interest, to the investor. In practice, the founder simply repays the debt obtained under the agreement and thus fulfills the financing obligation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_Applicability_of_Convertible_Notes_Under_Turkish_Law\"><\/span><strong>The Applicability of Convertible Notes Under Turkish Law<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Like many modern investment mechanisms, Convertible Notes are designed for common law <strong>jurisdictions<\/strong>. The Turkish Commercial Code does not regulate a concept such as \u201cconversion of shares,\u201d and under the current statutory structure, such conversion is not technically feasible.<\/p>\n\n\n\n<p>However, within the current Turkish startup ecosystem, different contractual and structural mechanisms are employed to functionally replicate the Convertible Note model, making its practical application possible.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p>For more information, please contact:<\/p>\n\n\n\n<p><strong>Gamze M\u00fcge Kan | <a>gamze.kan@kyolegal.com<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>What Is a Convertible Note? A Convertible Note, a funding method increasingly used in the startup ecosystem, is essentially a form of short-term, low-interest debt financing provided to early-stage startups. This mechanism allows founders to obtain the capital they need during the initial phase, while investors gain certain privileges for the next financing round. An<\/p>\n","protected":false},"author":3,"featured_media":1962,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[517],"tags":[],"class_list":["post-3769","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/kyolegal.com\/en\/wp-json\/wp\/v2\/posts\/3769","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/kyolegal.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/kyolegal.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/kyolegal.com\/en\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/kyolegal.com\/en\/wp-json\/wp\/v2\/comments?post=3769"}],"version-history":[{"count":1,"href":"https:\/\/kyolegal.com\/en\/wp-json\/wp\/v2\/posts\/3769\/revisions"}],"predecessor-version":[{"id":3770,"href":"https:\/\/kyolegal.com\/en\/wp-json\/wp\/v2\/posts\/3769\/revisions\/3770"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/kyolegal.com\/en\/wp-json\/wp\/v2\/media\/1962"}],"wp:attachment":[{"href":"https:\/\/kyolegal.com\/en\/wp-json\/wp\/v2\/media?parent=3769"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kyolegal.com\/en\/wp-json\/wp\/v2\/categories?post=3769"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kyolegal.com\/en\/wp-json\/wp\/v2\/tags?post=3769"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}