Is it a convertible note? It sounds like it is. Convertible notes are structured as loans with the intention of converting to equity. If so this is very common in early stage investments.

It's a much more simple, cheap, and fast way to raise money than traditional ways. Especially in very early-stage startups, valuation is really just some number. Most angel investors are investing in a team and idea -- _maybe_ an MVP. It's very difficult to put a valuation on any of these things that's accurate. A convertible note defers the valuation of the company until later rounds when things have been proved out more.

What you should know?

The two most important things to understand in general are the conversion valuation cap and the conversion discount. Often just referred to as the cap and the discount respectively. There is probably also warrant coverage in there to be aware of.