Convertible Loan Agreement (CLA)

Venture capital

A convertible loan agreement is an agreement for the granting of a loan that can or must be converted into shares if an equity financing round of the start-up takes place within the term (usually between nine and 24 months), in the context of which the company issues new shares.

PXR team portrait overview daniel
Corporate/M&A Lawyer and Authorised Signatory
Katharina Erbe Teaser
Corporate/M&A Lawyer

In addition to the classic components of a loan agreement and the conversion component, a convertible loan agreement often contains a "discount" and a "cap", i.e. a discount on the valuation of the company in the financing round and a maximum valuation on the basis of which the conversion takes place in the equity financing round. What is attractive about convertible loans is in particular that they can be concluded more quickly and at lower cost than an equity financing round.