Singapore has its own convertible instrument: the **CARE** — Convertible Agreement Regarding Equity — published as part of VIMA. It is not a loan, carries no interest and no maturity date, and converts on a defined event. A convertible note is debt: it accrues interest, it matures, and if it is not converted it must be repaid.
Convertible Instruments
CARE, convertible notes and choosing between them
Singapore has its own convertible instrument: the CARE — Convertible Agreement Regarding Equity — published as part of VIMA. It is not a loan, carries no interest and no maturity date, and converts on a defined event. A convertible note is debt: it accrues interest, it matures, and if it is not converted it must be repaid.
| Item | Detail |
|---|---|
| Company | [COMPANY NAME], UEN [UEN] |
| Investor | [NAME] |
| Instrument | [CARE / Convertible note] |
| Amount | S$ [AMOUNT] |
| Valuation cap | S$ [AMOUNT] |
| Discount | [20] per cent |
| Qualifying financing threshold | S$ [AMOUNT] |
| [Interest — notes only] | [RATE] per cent per annum |
| [Maturity — notes only] | [DATE] |
| Conversion security | [The class issued in the qualifying financing] |
| Most favoured nation | [Yes / No] |
| Governing law | Singapore |
1. Which Instrument
| Feature | CARE | Convertible note | Priced round |
|---|---|---|---|
| Legal nature | Right to future equity — not debt | Debt until converted | Equity now |
| Interest | None | [6–10] per cent, usually accruing | None |
| Maturity date | None | Yes — repayable if not converted | Not applicable |
| Repayment risk | None — no repayment obligation | Real — becomes payable at maturity | None |
| Balance sheet | Generally equity-like | A liability | Equity |
| Valuation needed now? | No — deferred to the next round | No | Yes |
| Speed and cost | Fast, low cost | Fast, low cost | Slow, higher cost |
| Moneylending question | Not a loan | Confirm the position — loans to companies generally excluded | Not applicable |
| Suits | Pre-seed and seed; bridge rounds | Where the investor wants downside protection | Where valuation can be agreed |
| Main drawback | Founders may not see the dilution until conversion | Maturity can arrive before the next round | Time and cost |
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The Convertible Agreement Regarding Equity is published free as part of the Venture Capital Investment Model Agreements, with drafting notes. It is Singapore-law, recognised by investors and their counsel, and negotiating from it is materially faster than negotiating a bespoke instrument. This document explains the terms so you can negotiate them.
The CARE creates a right to future equity with no interest, no maturity and no repayment obligation. A convertible note is debt: it accrues interest, it matures, and if unconverted it must be repaid. On a dissolution the note holder ranks as a creditor ahead of shareholders. That difference is the whole choice.
If the next round has not closed by the maturity date, the note becomes repayable — typically when the company has least cash. In practice it is renegotiated, but from a position of weakness. Either allow generous runway, or specify what happens at maturity other than repayment.
Where the next round prices above the cap, the cap determines the conversion price entirely and the discount is irrelevant. Founders focus on the discount because it sounds larger; the cap is what actually decides the dilution in a good outcome.
A very successful next round means early investors convert at the cap and take substantially more of the company than the headline terms suggest. Section 3 illustrates it. Founders who model only the expected case are consistently surprised.
A cap applied to the pre-money fully diluted capitalisation produces a different price from one applied post-money, or one excluding the option pool. The difference is material and the phrase "valuation cap" alone does not settle it. Define the denominator precisely.
Several instruments at different caps, issued over eighteen months, convert together in the same round. The aggregate is frequently far larger than founders expect from any individual instrument. Maintain the table in Section 6 and update it before issuing another.
Too low, and a small bridge round triggers conversion at a price nobody intended. Too high, and a genuine financing does not trigger conversion at all. Set it at a level that clearly signals a real priced round.
A holder who is not yet a shareholder should not have veto rights over the company’s operations. Information rights are reasonable; reserved matters are not, and they create a second control layer alongside the eventual equity documents.
If the company is acquired before conversion, does the investor take their money back, a multiple, or their converted share? Silence produces the most expensive argument in this document. Specify it, and specify whether accrued interest is included.
A convertible note is a loan. Lending in the course of a moneylending business generally requires a licence, and an unlicensed moneylending contract is unenforceable. Loans to companies are generally excluded, but confirm the basis rather than assuming it.
Where interest accrues and converts alongside principal, the dilution is larger than the principal alone suggests, and it grows the longer the next round takes. Founders should model conversion at the realistic date, not the earliest one.
Board resolution, constitution amendment if a new class is created, pre-emption compliance, deed of adherence, register update, return of allotment within fourteen days, and a certificate. Section 7 lists them because companies treat conversion as arithmetic and skip the corporate steps.
Employees holding options are diluted by conversion exactly as shareholders are, and they are rarely told. A short explanation before the round closes is better than the question afterwards.
Reflects Singapore practice current as of {{DATE OF USE}}. VIMA is periodically updated, market terms move, and requirements under the Companies Act 1967 and the Moneylenders Act change — take legal advice before issuing a convertible instrument, and model the conversion at several valuation levels before agreeing a cap.
This is a ready-to-use template provided for convenience. Laws and requirements change, and every situation is different — please have it reviewed by a qualified professional (a lawyer, corporate secretary, or accountant as relevant) before you rely on it.