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CLA (Convertible Loan Agreement)

A Convertible Loan Agreement (CLA) is a legal document that outlines the terms and conditions of a loan that may be converted into equity at a later stage, typically during a subsequent funding round or a liquidity event such as an IPO or acquisition.

The CLA establishes the terms of the loan, including the principal amount, interest rate, and repayment schedule, as well as the conditions under which the loan may be converted into equity. The agreement also sets forth the conversion price and any other terms and conditions related to the conversion, such as conversion triggers and the rights and preferences of the new equity holders.

CLA is a popular financing instrument in the startup ecosystem, as it allows early-stage companies to raise funds without having to determine an immediate valuation. The investors receive the right to convert their loans into equity in the future at a predetermined valuation, which typically provides them with favorable terms compared to other investors who invest at a later stage.