What a Convertible Note Maturity Date Means for a Startup Cap Table

A convertible note maturity date is the date by which the note must either convert into equity or be repaid as debt. Most convertible notes are issued with a maturity of twelve to twenty-four months. If a qualifying financing round has not occurred by the maturity date, the note holder has the legal right to demand repayment of principal plus accrued interest. In practice, most note holders prefer conversion over repayment and will negotiate an extension. The key word is negotiate. The founder has no automatic right to an extension.

The Distinction That Matters

The maturity date creates a legal obligation the founder may have forgotten exists. A company that raised a seed round via convertible notes twenty months ago and has not yet completed a priced round may find that three or four note holders have notes approaching maturity. If any single note holder declines to extend, the company faces a demand for repayment of a debt it likely cannot satisfy from its cash balance without depleting its operating runway. The practical outcome is rarely actual debt repayment. The practical outcome is a negotiation under time pressure with a note holder who now holds significant leverage.

The accrued interest adds a further complexity. A £250,000 convertible note at six percent annual interest over twenty-four months carries £30,000 of accrued interest at maturity. When the note converts, the conversion amount is £280,000 of principal plus accrued interest, producing more shares than the face value of the note implied. Every convertible note modeling exercise must include accrued interest in the conversion amount for the cap table to be accurate.

Why It Surfaces in a Raise Process

During legal due diligence for a priced round, the investor's legal team will review every outstanding convertible note and check its maturity date. Notes that are approaching maturity or have already passed their maturity date without formal extension agreements are a legal deficiency that must be resolved before the round closes. Resolution requires either a formal extension agreement signed by the note holder or confirmation that the note has already converted. Unsigned verbal extensions do not constitute a legal extension.

The Common Structural Error

The most common error is assuming the maturity date will be extended automatically by mutual understanding and not documenting the extension formally. An undocumented extension is not an extension. An investor who finds matured, unconverted notes without formal extension agreements in the data room will raise this as a legal deficiency requiring resolution before the round can close.

RELATED TERMS
- How a SAFE Note Converts at a Valuation Cap
- What a Fully Diluted Cap Table Records
- How a Waterfall Analysis Distributes Exit Proceeds
- Cap Table Errors That Surface During Legal Due Diligence and the Infrastructure Required to Resolve Them

Tool: Blueprint Diagnostic