Convertible Note Transaction Documents

It’s a common misconception that the ‘convertible note’ is the only legal document used in a convertible debt financing. I often receive emails from entrepreneurs asking for a ‘sample convertible note’ which I assume they are planning to use on their own.

In addition to the convertible note, a startup will also need to draft a convertible note purchase agreement…especially if the startup plans to close the convertible debt round with more than 1 investor. Sometimes a startup will include the provisions typically located in a convertible note purchase agreement in the convertible note, but this is only feasible if the startup closes the round with 1 investor.

Finally, the most often overlooked document is the consent of the startup’s board of directors with respect to the convertible debt round. In a typical convertible note purchase agreement, the startup will represent and warrant that all corporate action necessary to authorize and deliver the convertible note purchase agreement and the convertible note(s) have taken place prior to closing.

One Response to “Convertible Note Transaction Documents”

  1. Jose A. July 17, 2012 at 10:55 am #

    Nice to see a post after a while. We’ve closed convertible note financings w/ multiple investors and no Note Purchase Agreement quite fine – just a form note. Did a week ago in fact.

    Why do you think it’s not feasible?

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