Convertible Loan Note (CLN)
A short-term debt instrument that converts into equity at a later funding round, usually at a discount.
A CLN lets a startup raise money quickly without setting a valuation upfront. The loan converts into shares at the next priced round, typically with a discount and/or valuation cap rewarding early risk. CLNs are common in the UK but note that SEIS/EIS relief generally does not apply to convertible debt — founders often use ASAs instead for tax-advantaged rounds.
Examples
An investor lends £100k via a CLN with a 20% discount and a £4m cap. — A startup bridges between seed and Series A using a £300k convertible note.
How it relates to The Startup Foundry
Understanding instruments like CLNs is part of becoming investment-ready. The Foundry’s toolkit and Action Plan help you choose structures that align with the SEIS/EIS-focused investors in its network.