Convertible Loan Agreement

Convertible Loan Agreement

Legal advice on convertible loan agreements in Dutch startup and growth financing

Convertible loan agreements are widely used in Dutch startup, scaleup and growth financing transactions. They allow investors to provide funding now while postponing the valuation discussion until a future financing round or exit event.

For foreign investors investing in a Dutch BV, the convertible loan structure should be aligned carefully with Dutch corporate law, shareholder rights, share issuance mechanics and future governance arrangements.

Dutch convertible loan practice

A convertible loan starts as debt but may convert into equity if certain agreed events occur. In Dutch venture capital and growth financing transactions, conversion is often triggered by a qualified financing round, exit, maturity date or other agreed event.

The agreement typically regulates the investment amount, interest, maturity, conversion mechanics, valuation cap, discount, repayment rights, investor protections and treatment on insolvency or exit.

Unlike some US-style financing instruments, conversion into shares in a Dutch BV generally requires proper Dutch corporate implementation. This may include shareholder approvals, amendment of the articles of association and notarial execution.

Key issues in convertible loan agreements

A Dutch convertible loan agreement should clearly regulate when conversion becomes mandatory or optional and how the conversion price is calculated.

Particular attention should be paid to valuation caps, discounts, anti-dilution protection, pre-emption rights, investor consent rights and the position of existing shareholders after conversion.

The agreement should also address what happens if the company does not complete a financing round before maturity. In practice, disputes often arise where the documentation is unclear on repayment, extension or forced conversion.

For foreign investors, it is important that the convertible structure works properly within the Dutch BV framework and remains aligned with the future shareholders’ agreement and governance structure.

Convertible loans versus SAFE notes

Convertible loans are often used as an alternative to SAFE-style financing instruments. In Dutch practice, convertible loans are generally viewed as more established and structurally clearer because they include debt mechanics, repayment rights and more detailed conversion provisions.

The right instrument depends on the stage of the company, the investment structure and the expectations of the founders and investors.

How Dirk de Waard assists

Dirk de Waard advises founders, startups, scaleups, angel investors, venture capital funds and international companies on Dutch convertible loan agreements and related financing documentation.

His work includes drafting and reviewing convertible loan agreements, investment agreements, shareholders’ agreements, term sheets, governance arrangements and Dutch corporate implementation steps.

Questions about a convertible loan agreement or startup financing in the Netherlands? Send an email to dirk.dewaard@viottalaw.com.