What Should Be The Interest Rate On A Convertible Note (AKA Bridge Note)?

Convertible notes are structured as loans that to the company that convert into equity at a later point in time. The note is similar to a promissory note for any other kind of loan, with similar terms including interest and a maturity date (note that these two terms are the key differentiators between convertible notes and SAFES). These are often referred to as "bridge notes" because they are often offered by investors who invested in a prior round that are in negotiations with the company on a follow-on round, so the financing bridges the company's finances until the next round closes. Typically, the bridge note doesn’t require interest payments until the maturity date. And most of the time, the interest converts into preferred stock, rather than being paid in cash.

But that still leaves the question, what should the interest rate be? Read more.