Convertible Notes

The Rolling Close

Unlike Series A Rounds, most seed rounds of financing don’t have all investors fund their investment on the same date. Sometimes it’s a matter of logistics for investors, but mostly it’s because the startup is continuously identifying and pitching potential angel investors to join in the seed round. The startup can’t afford to wait to … Continue reading

Convertible Note Interest

The principal invested via a convertible note should accrue interest, but the rate of interest should be lower than a typical non-convertible loan from an investor. The range I see is 2-8% for convertible notes. Lower on the coasts and internationally, higher in the middle of the country. If a potential investor plays hardball and … Continue reading

Convertible Note Term Sheets

Just like the preferred equity financing process, the convertible debt financing process can start with a term sheet, rather than a full set of financing documents. A convertible note term sheet is beneficial because it postpones a lawyer from cranking out a full set of docs until consensus is reached regarding the convertible debt offering’s … Continue reading

How Convertible Debt Works

Convertible debt is a type of security frequently issued by startups when raising seed capital. With convertible debt, the startup issues the seed investor a promissory note, for the investment amount, that contains a conversion feature. The conversion feature is the mechanism by which the debt (the promissory note) will convert to equity (new shares … Continue reading