A convertible note is a form of short-term debt. A startup can raise money via this route instead of traditional equity where the valuation has to be decided immediately. A convertible note means that the debt gets converted into equity later on, either on the next funding round, or during an IPO, giving the investor shares. Sometimes when valuations are hard to agree on or parameters are unclear, investors and companies prefer convertible notes. At other times when a company needs debt for working capital and so on, debt may work better than equity.