Convertible Note Services
Convertible notes are one of the most common ways for early-stage companies to structure seed and angel investment. A convertible note is simply a loan by an investor to a company, which automatically converts into equity when the company later raises an equity round of a certain size — typically with a discount to compensate the investor for the risk of supporting the company so early in its lifespan.
From the company’s standpoint, the main benefits of convertible notes are simplicity and cost-efficiency. Convertible note documentation is light, quite standardized, and therefore – if you’re working with the right lawyer – inexpensive.
Though simple, convertible notes nevertheless require choices to be made in areas such as the discount percentage, valuation cap, mandatory and optional conversion events, to name a few. A simple web search reveals dozens of websites offering information about convertible notes. Some of them are very good. (I reference a few in my blog post dealing with this subject.) The sheer volume of information, however, can also be overwhelming.
After you’ve taken the time to educate yourself on the basics, it can be helpful to retain experienced counsel to help you stay focused on the important points, and not get paralyzed by over-analysis. Goodcounsel regularly advises its clients on the ins and outs of convertible notes matters. We will help you make sense of this and make the right choices for your company.
We will also explain the issue of securities registration, and help you decide whether it is advisable to register under the federal securities law “safe harbor” known as Regulation D, and figure out what risks the morass of state securities laws, called “Blue Sky Laws,” might present.