Introduction
A convertible note or convertible loan is a loan that can be converted into shares when new financing is obtained. In Ledgy, these can be created with interest, maturity dates, valuation caps and discounts. This article explains how to create convertible loans, what transaction-specific settings are made, what the components mean, and how to convert the loans into shares.
How to create convertible loans?
Go to Ownership > Transactions > Add transaction > Convertible Loan.
The mandatory fields are:
Stakeholder: The person who invests and receives the convertible loan.
Issue date: When the convertible loan was issued.
Investment: The amount that the stakeholder has invested.
Currency: The investment currency.
The following fields are optional:
Maturity and discount
Maturity date: It is the date in the future by which the loan should be repaid
Cap: It is the maximum valuation at which the convertible note can convert into equity.
Discount: This is the rate at which the convertible note holder can buy shares.
Interest
Non-compounding: Enter the daily interest rate.
Interest start date: The time when the interest on the investment starts.
Days per year: The number of days for calculating daily interest.
Pay back at conversion: The decision of whether the interest will be repaid when the convertible loans are converted. If "yes" is selected, the accrued interest is not considered when calculating the conversion in the scenario modelling.
Documents: You can upload a document and link it to the convertible loan.
Stakeholder beneficiary: A beneficiary is an economic beneficiary behind a legal entity. If beneficiaries are set, you can view the cap table regarding legal or economic distribution. This can also be used in Ledgy to manage pooled investments.
Internal note: If you want to add a message related to the transaction.
Clicking on the Save button will create a convertible loan transaction in your cap table.
How do you convert convertible loans into shares?
Go to Ownership > Transactions > Search for the convertible loan.
There are two options to convert loans into shares:
Click on the Convert to shares button on the left-hand side.
Click the three dots on the right-hand side and then on Convert to shares.
Define the following options for the loan conversion:
Conversion date: The date when the loan will be converted into shares.
Number of shares: The number of how many shares that will be issued.
Share class: Define what share class the converted shares will have.
Optional fields:
Documents: You can upload and link a document to the loan conversion.
Internal note: If you want to add a message related to the transaction.
Clicking on the Save button will create a share issuance transaction.
How do you pay back a convertible loan?
Go to Ownership > Transactions > Search for the convertible loan > Click the three dots on the right-hand side and then on Pay back.
Define the following options for the payback:
Date: The date when the loan will be paid back to the stakeholder
Total payment: The repayment amount.
Currency: The payback currency.
Define the following options for the payback:
Documents: You can upload and link a document to the loan conversion.
Stakeholder beneficiary: A beneficiary is an economic beneficiary behind a legal entity. If beneficiaries are set, you can view the cap table regarding legal or economic distribution. This can also be used in Ledgy to manage pooled investments.
Internal note: We pre-populate this field by default with "Convertible payout".
Clicking on the Save button will create a payout transaction.
What about SAFEs?
A SAFE (Simple Agreement for Future Equity) is an investment instrument commonly used in early-stage fundraising, particularly in the US. Like a convertible loan, a SAFE provides investors the right to convert their investment into shares during a future financing event. However, SAFEs differ from traditional convertible loans in a few important ways:
No interest: Unlike convertible loans, SAFEs typically do not accrue interest
No maturity date: SAFEs do not have a repayment deadline — they remain outstanding until a qualifying event triggers conversion
Not debt: SAFEs are equity-like instruments rather than loans, meaning there is no obligation to repay the investment
How are SAFEs handled in Ledgy?
In Ledgy, SAFEs are managed using the same Convertible Loan transaction type. Since SAFEs and convertible loans function similarly from an equity modelling perspective — both involve an investment amount with optional valuation cap and discount that determines conversion terms — they share the same workflow in Ledgy.
To create a SAFE in Ledgy, follow the same steps described in the section above, with a few adjustments:
Go to Ownership > Transactions > Add transaction > Convertible Loan
Fill in the mandatory fields: Stakeholder, Issue date, Investment, and Currency
Under Maturity and discount, set the Cap (valuation cap) and/or Discount as specified in the SAFE agreement. Maturity date — you can leave this empty since SAFEs do not have a maturity date.
Under Interest, leave all interest fields empty since SAFEs do not accrue interest
Optionally, upload the SAFE agreement under Documents and add an Internal note (e.g., "SAFE note") to help distinguish this from a traditional convertible loan
Tip: Since SAFEs and convertible loans share the same transaction type in Ledgy, using the Internal note field to label the instrument (e.g., "SAFE" or "SAFE note") makes it easy to identify SAFEs on your transactions page.
How are SAFEs converted?
Converting a SAFE into shares follows the same process as converting a convertible loan. Navigate to the SAFE on your Transactions page and use the Convert to shares option as described in the conversion section above.
When modelling SAFE conversions in scenario modelling, Ledgy will apply either the discount rate or the valuation cap — whichever results in a lower (more favourable) share price for the SAFE holder. Since SAFEs do not accrue interest, there will be no interest component added to the conversion amount.
How do SAFEs appear on the stakeholder dashboard?
SAFEs are displayed on the stakeholder dashboard alongside other convertible instruments. Please note that convertible instruments, including SAFEs, are not reflected in the "Equity value growth" section of the stakeholder dashboard. This section only shows the potential value of shares and grants.
FAQ
How do a discount and a valuation cap affect the share price when converting convertible loans?
If the number of shares is calculated in scenario modelling, the following formula calculates the share prices.
What is the difference between a SAFE and a convertible loan in Ledgy?
Both SAFEs and convertible loans use the same Convertible Loan transaction type in Ledgy. The key difference is that SAFEs typically have no interest and no maturity date. When creating a SAFE, simply leave the interest and maturity date fields empty. You can use the Internal note field to label the transaction as a SAFE for easy identification.