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May 2nd, 2012 Convertible promissory notes do not include a stated pre-money valuation. Instead, the convertible note seed investor and startup agree that the pre-money valuation for the convertible note investment will be determined by the pre-money valuation the startup receives at the Series A round. However, the convertible note investor does not receive the Series A pre-money valuation, but rather a lower pre-money valuation as determined by the conversion discount.
The convertible note seed investor gets a lower pre-money than the Series A investors for investing in the startup before the Series A round. Since the convertible note investor made the higher-risk
. . . → Read More: Conversion Discounts in Convertible Notes
April 17th, 2012 This is a Youtube video explanation of a cap (capitalization) table example that is available online. It may take a while get your head around the terminology and concepts involving the option pool and note conversion, and their impact on valuation. It is worth taking time to understand this if you want to see how the option pool and valuation can be played off against each other. Entrepreneurs need to understand this if negotiating with investors.
. . . → Read More: Venture Hacks Series A Cap Table, with Note Conversion and Option Pool
April 16th, 2012 This post is the first part of a three-part primer on convertible note seed financings. Part 1 will address basic questions, such as (i) what is a convertible note? (ii) why are convertible notes issued instead of shares of common or preferred stock? and (iii) what are the advantages of issuing convertible notes?
. . . → Read More: Everything You Ever Wanted To Know About Convertible Note Seed Financings (But Were Afraid To Ask)
April 10th, 2012 In the latest example of VC chatter – wherein multiple venture capitalists simultaneously blog about a hot issue – the topic du jour is the debate between convertible debt and equity rounds. The spark came from a by founder Paul Graham (yes, he ) that declared convertible notes victorious since each of this summer’s YC class opted for them. This morning, several VCs have weighed in on the issue, so here’s what entrepreneurs and early-stage startups need to know about the debate.
Firstly, what is convertible debt and how is it different from a normal straight equity investment? Seth Levine
. . . → Read More: Equity vs. Convertible Debt: VCs Debate Shifting Investment Trends
October 22nd, 2011 We’ve completed our series on convertible debt and hope that you enjoyed it. If we ever get around to writing a second edition of Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist we’ll be sure to include this as well. If you go to the resources section of Ask the VC we’ve included standard forms used in a variety of venture deals. As of this posting, we’ll include some standard convertible debt documents subject to the disclaimer that we aren’t you lawyers and make no reps or warranties with respect to these documents, so use at your own risk. Related posts (see original pos
. . . → Read More: Convertible Debt – Wrap Up
September 21st, 2011 Recently, several entrepreneurs and investors have asserted to me that they don’t think the terms on a convertible debt deal matter much. I was perplexed by the statement and asked each of them to tell me more. In every case, the person hadn’t really thought through the issues. Rather, they were just spouting what they believed was conventional wisdom about terms for seed deals. In one of the entrepreneur cases, I explained how it was likely that they were going to be on the wrong side of the valuation discussion in the next financing based on one of the terms. In one of the investor cases, I
. . . → Read More: Startup Funding — Understand Convertible Debt Terms?
February 8th, 2010 We launched our company about six months ago, and we have a couple of angel investors lined-up for about $300,000. We don’t know if we should sell t
. . . → Read More: Ask the attorney: What sort of stock should I give my angel investor? | VentureBeat
October 27th, 2008 Here you will find the general form of a convertible note. Also, by browsing the entire convertible note section on this blog, you will find answers
. . . → Read More: What does a convertible note bridge financing term sheet look like? : Startup Company Lawyer
October 26th, 2008 I, like most investors, have a strong point of view on the topic — and wanted to share my thoughts.
In general, I have a strong preference for Pr
. . . → Read More: Redeye VC: Bridge Loans vs. Preferred Equity
October 11th, 2008 Convertible debentures are debt instruments that convert into equity at triggering events. Angels and other early stage investors use convertible deb
. . . → Read More: Angels: Don’t Use Convertible Debt to Fund Startup Ventures
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