Not every round should start with a convertible.
CLAs are fast and flexible. For many founders, they’ve become the default mode of early-stage funding.
But that doesn’t mean they’re always the right choice.
At Paligan, we see a lot of early-stage rounds. Some should be structured as equity from day one. Others are better served by a convertible. The difference isn’t the instrument—it’s the intention.
Here’s how we think about it.
What a CLA Actually Offers
A convertible loan agreement (CLA) lets you raise money today and postpone the valuation discussion—usually at the next equity round.
In early stages, this can be useful:
Speed: Faster to close than a priced round
Simplicity: Fewer negotiation points
Flexibility: Often used to bridge between larger raises
Alignment: Keeps everyone focused on progress, not valuation debates
Used with purpose, a CLA can be a clean way to get early conviction onto your cap table.
But CLAs Come with Trade-Offs
They don’t solve everything. If used by default, they can create more complexity later.
No defined ownership today: Conversion comes later, which creates uncertainty.
Stacking risk: Multiple notes can dilute unexpectedly in the next round.
Cap table confusion: Founders may not realize how much ownership they’ve promised.
Limited governance: Investors often don’t take board seats or formal roles.
That’s fine if it’s intentional. But it shouldn’t be automatic.
When a CLA Makes Sense
Choose a CLA when the goal is to move quickly without forcing a valuation:
You’re raising a bridge between two equity rounds.
You’re at pre-seed or pre-product stage, and a valuation would be arbitrary.
You’re bringing in existing investors who already know the business.
You need speed to capture an opportunity or extend runway.
In these moments, flexibility matters more than formal structure.
When Equity Is the Better Move
Don’t avoid equity just because it’s more work. In many cases, it’s the cleaner and smarter path:
You’ve found a lead investor willing to price the round.
You have real traction, and the valuation discussion is justified.
You want transparent governance and aligned ownership early.
You’re planning to raise from institutional VCs in the next 12–18 months.
Equity gives you visibility, structure, and long-term alignment. For later-stage seed or Series A rounds, it’s often the right call.
What We Tell Founders at Paligan
We’ve backed both CLA and equity rounds. The key is to understand what your round is trying to achieve.
We look at:
Who’s investing
How fast the round needs to move
What clarity already exists around valuation
Whether this is a bridge or a foundational round
We don’t believe in defaulting to any instrument. Each deal should be structured to fit its moment.
Raise with Intention
Raising capital is more than filling a gap. It’s setting the tone for everything that comes next: your cap table, your governance, your alignment.
So don’t just choose a CLA because it’s quick.
Choose it because it fits.
And if it doesn’t, structure a round that does.