Using Convertible Notes For Startup Financing

If you’re planning a seed round raise you need to know your way around convertible debt: what it is, how it works, and what the benefits are. While investors in some less well-developed startup hubs are still largely resistant to using convertible notes and some angels prefer priced rounds, according to SEEDCHANGE’S Kevin Smith, 93% of early-stage rounds in coastal startup hubs use convertible notes. Fill out this form for a free download of a conversion scenario template or read on for more info about how convertible notes work. So what are convertible notes exactly? Essentially, notes are debt that acts like equity. They function as legal IOUs but with repayment in stock instead of cash. That said, convertible notes must have certain debt features such as interest rates and maturity dates. More on those later. Key features of convertible notes: Short agreements — Note purchase agreements are typically three …
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