What Are Convertible Loan Notes? A Guide for Private Market Investors

Convertible Loan Notes are quietly becoming one of the most discussed structures in modern private markets.

Not because they are new. Venture capital and growth-stage businesses have used them for decades. What is changing is the environment around them.

Over the last few years, growth capital has become harder to access, equity valuations have become more sensitive, and investors have become increasingly selective about where they deploy capital. At the same time, many private businesses are still looking to scale quickly, expand internationally, or build infrastructure ahead of larger institutional raises.

That combination has pushed more attention toward flexible funding structures capable of balancing both protection and upside.

Convertible Loan Notes, often referred to as CLNs, sit directly within that conversation.

What Are Convertible Loan Notes?

At their core, Convertible Loan Notes are a hybrid investment structure sitting somewhere between traditional private credit and private equity.

Investors provide capital to a company in the form of a loan, usually with a defined maturity period and interest component. However, unlike a conventional loan, the investment also includes the ability to convert into equity under predefined conditions, often during a future funding round, acquisition, or liquidity event.

That balance is exactly why CLNs continue to attract attention in modern private markets.

For companies, they provide access to flexible growth capital without immediately locking in a valuation. For investors, they can offer exposure to future equity upside while still retaining some characteristics associated with structured lending.

In practical terms, CLNs allow investors to participate in the growth potential of a business without taking pure equity exposure from day one.

Why Companies Are Turning to Convertible Structures

Raising capital has become materially more complex for many private businesses.

Recent PitchBook-NVCA venture market data shows how venture fundraising and deal conditions remain more selective than the 2021 peak, with companies facing a more disciplined capital environment.

Banks have also tightened lending conditions across multiple sectors, particularly for businesses still in scaling phases or operating within newer technology-led markets.

This has created an awkward middle ground for many companies. They still require capital to grow, expand infrastructure, hire talent, or enter new markets, but many are cautious about raising equity at valuations they believe may undervalue the long-term business.

Convertible Loan Notes help bridge that gap.

Rather than forcing an immediate valuation discussion, the company can secure funding today while deferring pricing conversations until a later stage, ideally once revenues, scale, or market positioning have strengthened further.

That flexibility can be particularly valuable during periods where market conditions remain uneven or difficult to price confidently.

CLNs are also typically faster and more operationally efficient to structure than large institutional equity rounds. In many cases, they are used as a bridge between one stage of growth and the next.

Increasingly, these structures are being seen across technology, healthcare, fintech, AI infrastructure, and real estate platforms where businesses are scaling quickly but still navigating evolving market conditions.

Why Investors Are Paying More Attention to CLNs

The investor appeal is equally tied to the current market environment.

Traditional fixed income has not always behaved particularly defensively in recent years, while pure equity investing can feel increasingly volatile during periods of macroeconomic uncertainty, geopolitical tension, and shifting interest rate expectations.

Many investors are no longer looking exclusively at “growth” or “income” in isolation. They are looking for balance.

Convertible Loan Notes offer a structure that can potentially combine elements of both.

The debt component may provide contractual income or accrued interest, characteristics more commonly associated with private credit investing. Simultaneously, the conversion feature preserves exposure to future equity appreciation if the underlying company performs strongly.

That hybrid profile is becoming increasingly relevant as investors seek more measured ways to access private markets.

Preqin’s 2025 Global Private Debt Report points to an asset class where direct lending remains a major strategy, while investors continue to weigh yield, risk, competition for assets, and market conditions. That context helps explain why investors are spending more time looking at structured alternatives to traditional public market income.

This does not eliminate investment risk, nor should Convertible Loan Notes be viewed as a substitute for careful due diligence. The quality of the underlying business remains critical.

However, when paired with scalable businesses, experienced management teams, and clear market demand, CLNs can offer an attractive middle ground between capital preservation and growth participation.

Where Convertible Loan Notes Sit Between Private Credit and Private Equity

One of the reasons CLNs are gaining traction is because traditional asset class lines are becoming increasingly blurred.

For decades, investors tended to separate strategies quite clearly:

• Private credit for income and downside protection
• Private equity for long-term growth potential

Modern private markets are becoming more nuanced than that.

Investors are increasingly looking for structures capable of balancing multiple objectives simultaneously. Predictable income remains important, but so does exposure to innovation, technology, and long-term growth sectors.

Convertible Loan Notes sit directly between these two worlds. They provide a more structured entry point than pure equity while still preserving the ability to participate in future upside if the company executes successfully.

That balance can be particularly attractive during periods where valuations remain uncertain, IPO activity slows, or investors want additional flexibility within private market allocations.

McKinsey’s Global Private Markets Report 2025 highlights that investor interest in private markets remains strong even as conditions stay uneven, reinforcing the broader shift towards alternatives beyond traditional public equities and bonds.

As private markets mature further, demand for hybrid structures is likely to continue growing alongside them.

Why Flexible Funding Structures Are Becoming More Relevant in 2026

The broader macro backdrop matters here.

Interest rates remain elevated relative to the previous decade, capital has become more selective, and many businesses are still operating within slower fundraising environments than those experienced during the post-pandemic growth surge.

EY’s Global IPO Trends research notes that the IPO market remains open but selective, with access increasingly shaped by fundamentals, resilience, and preparation. That matters for private companies considering when to raise, when to list, and how to bridge the gap between growth stages.

At the same time, innovation across sectors such as AI, healthcare technology, digital infrastructure, and tokenised real estate continues to accelerate quickly.

That creates an environment where businesses still need expansion capital, but both investors and management teams are approaching funding conversations with greater discipline.

Flexible structures naturally become more relevant in markets like this. They allow companies to continue scaling while giving investors a more balanced framework through which to access growth opportunities.

Importantly, sophisticated investors are not simply chasing the highest possible yield. Increasingly, they are focusing on the structure behind the opportunity, the quality of the underlying business, and the long-term market positioning of the company itself.

That shift in thinking is becoming one of the defining characteristics of modern private markets.

How Technology and Real Estate Platforms Are Using Modern Funding Structures

This evolution is also becoming increasingly visible across modern real estate and property technology platforms.

Historically, real estate investing has often been shaped by high barriers to entry, geographic limitations, and fragmented access to opportunities. Technology, tokenisation, and modern investment infrastructure are beginning to reshape that landscape.

Boston Consulting Group research on asset tokenisation has projected a multi-trillion dollar opportunity for tokenised assets as infrastructure, regulation, and investor access continue to evolve globally.

Platforms operating within global property markets are increasingly exploring more flexible funding mechanisms to support growth, infrastructure development, and international expansion.

We’ll be discussing this in more detail during our upcoming investor webinar with Bricksave, exploring how technology, tokenisation, and access are reshaping the future of global real estate investing.

Hosted by Tom de Lucy, CEO & Co-Founder of Bricksave, the session will explore:

• The evolution of tokenised real estate investing
• How technology is reshaping global property access
• Modern funding structures within proptech and real estate infrastructure
• The future of fractional and international property investing
• Live Q&A with the Bricksave leadership team

Thursday 21st May | 1:30PM BST

👉 Reserve your place here

Final Thoughts

Convertible Loan Notes are not a new concept. What is changing is the role they are beginning to play within modern private markets.

As companies seek more flexible growth capital and investors become increasingly selective about balancing risk, income, and long-term upside, hybrid structures are becoming more relevant across multiple sectors.

For investors, understanding how these structures work matters just as much as the opportunities themselves.

Private markets are evolving quickly. The ability to navigate them with clarity, context, and access is becoming increasingly valuable.