If the company becomes insolvent before the qualifying funding round, the funding threshold isn’t met or there is an exit by the company (eg the company is sold or made public), the investment will convert into shares automatically just prior to that event. In the event of insolvency, the investor will become a shareholder and can make a claim on the company's assets, along with the other shareholders. The value at which shares convert should reflect a more realistic valuation of the company and is typically lower than the valuation cap set for a funding round.