Was this . With convertible notes and the old SAFE you don't really know, though you can sort of guess a bit in a range. Developed in collaboration with Y Combinator. Amount of Financing: Up to $750,000 may be issued. A convertible note is a security, typically used by angel investors or seed investors, that is a short-term loan, to provide seed capital for a business. Cap divided by the capitalization of the Company, on a fully-diluted, as-converted basis, immediately prior to such Qualified Financing or Non-Qualified Financing. The Cap Table Template manages priced round (valuation is known) as well as convertible notes: Priced Rounds Convertible Notes 500 Startups' KISS YC SAFE Pre-Money Cap, ie. In less than 5 minutes using Zegal templates and tools. A convertible note is a loan from the investor to the company that converts to equity in the company upon a preferred stock financing that meets certain conditions. 2 The typical interest rate for a Convertible Note is 8.0 - 12.0%. Supports convertible notes, pre-money and post-money SAFEs. series of the Company's notes known as the [2013] Convertible Promissory Notes (collectively referred to as the "Notes"), all of which contain similar terms, except as to the name of the holder, the date of issuance, [the Maturity Date, Default Conversion Price and Valuation Cap (as such terms are defined below)], the Removed pTX and pNX staging. Learn how to read a cap table and manage it with a free cap table excel template to manage and track the capitalisation of your company. So summarizing a convertible note is an investment with an interest rate, a cap and a discount. Seed investor's investment with a valuation cap of $4,000,000 with no discount. The principal and accrued but unpaid interest under this Note (the "Aggregate Note Amount") shall, at the Holders election, be convertible at any time into shares of (i) the Company's Class A common stock, no par value per share ("Class A Common Stock"), or (ii) if the Class A Common Stock has been converted into another class of common stock as of the date of conversion of the Note . Convertible notes are not equity, so technically they do not go into the count of shares. Maturity Date: Principal and unpaid accrued interest on the Notes will be due and payable twelve (12) months from the date of the Note Purchase Agreement (the " Maturity Date "). 2 The typical interest rate for a Convertible Note is 8.0 - 12.0%. A convertible note is a security, typically used by angel investors or seed investors, that is a short-term loan, to provide seed capital for a business. Convertible note templates. Type of Security: Convertible promissory notes (the "Notes Enter the amount, discount, and cap for the convertible note. Having set your cap, your next conversation with an investor that dislikes notes goes something like this: Entrepreneur: we are offering a convertible note with a 6% interest, 20% discount, and a $4 million valuation cap. Some people recommend convertible notes instead of SAFE notes and believe that SAFE notes are not as simple or inexpensive as they appear. With respect to any conversion of any Note, the holder thereof . Save your company's wire instructions to automatically send to each investor. A. Let's do a simple numerical example ignoring any accrued interest: You invest $25k in a startup's seed round using a convertible note with a 20% discount. Think of a particular way, and you would like to have your convertible agreement template It is not necessary to have the same copy as one might have seen it somewhere, but it is necessary to have something that is more worthy of having and owing for your business. 2013 documents YC SAFE Post-Money Cap, ie. Description Promissory Note Form. . All material here is provided for illustration only; please read the disclaimer before use. What this post is really about is that many people have written to me regarding the absence of a useable public convertible note template that lawyers and startups can leverage for seed deals; . An indication that leads to large amounts of equity is called the problem of preference to multi-funding. As one of the main "points" of doing a convertible note was to not fix a valuation in the first place, and with a cap you basically have set a valuation, go with a "Series Seed" equity deal instead. Click here to open the Series Seed Convertible Note Financing Documents Generator. Model priced funding rounds with convertible securities to understand founder dilution in LTSE Equity. Valuation Cap: $_____. The College of American Pathologists (CAP) June 2021 release of the updated CAP Cancer Protocols, includes 87 revised and three new cancer protocols. On conversion the debt is eliminated and entered as new capital to agree with the Series A cap table. Created by Equidam and free for everybody to use. Convertible Note Agreement Template A debt instrument that could be converted into equity under predetermined conditions is a convertible note. Finally, while convertible notes allow the company to defer the valuation conversation until a later time (see discussion under "Pros" above), any inclusion of a conversion cap will raise a similar conversation, which defeats some of the purpose for why companies and investors alike originally favoured the convertible note as a quick-and . For example, there could be an instance in which after the SAFE note is signed and a valuation cap discount is arranged, another investor offers a larger cap and requests that the SAFEs convert to a higher cap. Works for equity rounds, convertible notes, SAFEs, warrants, equity grants, options, and more, across multiple rounds of investments at different valuations, and shows how the distribution of value and ownership changes over multiple rounds. Ultimate startup cap table example and return analysis template (UPDATED!) The Notes will be made pursuant to a Convertible Note Purchase Agreement . When qualified financing occurs, it sets a price per share by dividing the valuation cap by the number of shares of common stock outstanding right before qualified financing occurred. The calculator works out the conversion values based on both the discount and on the cap, and uses the maximum of these two . Don't use convertibles. The note is triggered or executed, Ideally, on a new round of funding. If the value . 2018 documents Get Insights into your Cap Table The template automatically generates useful, powerful and beautiful insights. As a general rule, the shorter the term of the Notes and the less risky the investment, the lower the expected discount. At the equity financing, it declares a minimum fund to be raised. I. Let's do numerical example ignoring any accrued interest: 1. This is mainly . With respect to any conversion of any Note, the holder thereof . There are a number of reasons for this, including: Speed: These agreements are simpler and shorter relative to preferred stock financing documents (e.g. It also allows companies to design . The S3 Cap Table Template is an indispensable resource for entrepreneurs. Entrepreneur: OK, then we are offering preferred equity with a $4 million pre . A convertible note is a type of short term debt that converts into equity. Learn more about the Series Seed project and our contributions in our introductory post.. Current version: 1.0 (June 20, 2017 - RELEASE NOTES) Nothing a quick search . Answer (1 of 2): What's the difficulty? Interest Rate: Conversion Cap: Maturity (years): Discount: Convertibles Calculation 1 Convertible Note Round Assumptions Assumptions: Seed Round Calculations Seed Ventures Shares Seed Ventures Round Calculation For example, X provides a convertible loan to the company that automatically converts into shares at the next equity financing over $2 million with a Cap of pre-money valuation of $6 million. A quick and easy convertible note calculator with the average and most used discounts. That's 1/3 of the ownership that the VC gets in a priced round for ~8x the money! Example Convertible Note Term Sheet Share section. . "Term sheet for a convertible note" templates. Some investors place special demands on convertible notes to address the inherent problems with valuation in young startups, such as placing a conversion value cap on the transaction. 3 The typical range of discounts that we see is 10-30%. 1 Excel Cap Table Template Workbook for use in Excel and Google Sheets Taylor Davidson offers you . Tl;dr: FREE cap table example! Convertible Note Agreement Template Australia Founders generally prefer a higher valuation cap so as not to give investors a lot of equity. Integrated checklist helps you keep track of the status of each investor, including whether you've received their funds. Issue safes or convertible notes to seed investors, after doing a free board consent to authorize the seed financing. As mentioned earlier, a convertible note template or agreement is only a starting point for startup founders attempting to raise capital using convertible notes. $[insert] (Valuation Cap). the Investor may elect to convert the entire Investment Amount into Preferred Shares at the Valuation Cap. . There are a number of reasons for this, including: Speed: These agreements are simpler and shorter relative to preferred stock financing documents (e.g. A Cap sets the maximum company valuation at which the investment made via the convertible loan can convert into equity. For e.g., the maximum size of the round, the interest rate on the note, etc. For your convenience, this template document is available as a Google Doc to make it easier to copy and edit. SAFEs and convertible notes have become very popular in recent years, with many startups using them to conduct their initial fundraises. Founder Convertible Notes - Put Your Money on the Cap Table posted in Convertible Notes , Equity , Formation , Founders , Funding , SAFEs on August 15, 2013 by siliconhillslawyer It's quite the norm for a startup to run on its own founders' sweat equity and personal funds (bootstrapping) until the Company is able to raise outside capital. The date within which you raise the £500,000 is 30th January 2023. Financial model template to create a cap table through multiple rounds of investments, and forecast how investment rounds impact ownership, dilution, valuations, and distribution of proceeds to entrepreneurs and investors through a detailed exit waterfall. The date is July 1, 2016, and we successfully received a total investment of $150,000 ($100,000 investment from Angel Investor #1 and $50,000 from Angel #2) in the form of a convertible note. It serves as a template for the convertible note for both parties. Otherwise, at a predefined deadline or maturity date often 18 or 24 months after the original investment. Also ideally, if the company is acquired. Continuing from our pre-investment cap table example, our startup currently has two founders, three employees, an option pool, and no investment.Well, let's change that last statement. A Convertible Note is a short-term debt instrument that converts into equity and widely used by startups to collect funding. Series A company pre-money valuation: $12,000,000. Taking that time can easily pay off 10-20x+ in terms of the improved cap table or governance position you get from a little tweaking. 5 Convertible Note Financing Term Sheet (Seed-Stage Start-Up) Optional Clause I to be added after Conversion: Change of Control: If the Company completes a change of control transaction before the payment or conversion of the entire balance under each Note and prior to the Maturity Date, then upon the closing of The KISS convertible note is a short and sweet "open source" document that was drafted after discussions with many Silicon Valley law firms and early-stage investors. 5 Steps to Create a Convertible Agreement Step 1: Think of the Format. SAFEs and convertible notes have become very popular in recent years, with many startups using them to conduct their initial fundraises. This template cap table is intended for use when considering a potential equity investment in a company (whether from existing shareholders, external investors, or both). In the example above, you can see that $500K of convertible notes winds up with ~$1.3MM in preferences and ~7.3% ownership because of the $4MM cap. The Convertible Loan Note automatically converts when you manage to raise a specific amount of funding within a specified period of time. or "cap table" for short, is a list of a company's securities (common stock, preferred stock, convertible notes, SAFEs, options, warrants, etc.) Used by investors, lawyers, and pre-seed, Seed, A, B, C, and post-funding stage companies to model equity rounds, convertible notes, post . A quick and easy convertible note calculator with the average and most used discounts. MobStac Convertible Note.doc. Convertible notes are less certain as they dilute one another etc as I mentioned before. There are a few convertible note templates available for founders who are interested in raising this type of financing. The unique aspects of a convertible note are: A. lower of an agreed cap upon the company prior to the new financing (i.e., a valuation cap) and a discount to SC Launch, Inc. Convertible Note Agreement - Page 2 required by SC Launch are hereinafter sometimes referred to collectively as the "Financing Documents." 1.2 Preferred Stock. It converts into equity in the company so long as certain agreed metrics are achieved; B. If, at the Series A, the startup raises money from a venture capital firm that invests at a pre-money valuation of $10M with a per share price of $5.00 IF we apply the discount, the price per share would be $4.00/share ($5.00 times . Series Seed or Series A). VentureSouth: we only invest in priced rounds. This problem really boils down to who gets diluted and how much the company is worth. . The Notes will be issued and sold pursuant to a convertible note purchase agreement prepared by the Company's legal counsel . Investors use a note's discount rate, interest rate, valuation cap, and maturity date to evaluate an opportunity of investing in convertible notes. This is typical, though in some instances the notes convert alongside the next round. Series Seed deals can be simple to document, do not generally come with lots of control-strings attached, and . What is a convertible note agreement? It converts into equity in the company so long as certain agreed metrics are achieved; B. Conversion rather than repayment is the usual intention of the parties. C. The usual events for conversion (a conversion event) could be some or all of: 1. The Convertible Note, like a promissory note, offers something such as equity in exchange for a payment. Having set your cap, your next conversation with an investor that dislikes notes goes something like this: Entrepreneur: we are offering a convertible note with a 6% interest, 20% discount, and a $4 million valuation cap. ), with primary drafting by Zeke Vermillion of Adler Vermillion & Skocilich LLP, and Vanessa Schoenthaler of Qashu & Schoenthaler LLP. It effectively caps the price at which your notes will convert into equity and - in a way - provides convertible note holders with equity-like upside if the company takes off out of the gate. VentureSouth: we only invest in priced rounds. . 3 The typical range of discounts that we see is 10-30%. Maturity Date: The Notes will mature ___ (__) . . At the Series A, the startup raises money from a venture capital firm that pays $5.00 per share of Series A . For any formal presentation it's the same as a cap table _without_ the convertible note, plus a few rows or a footnote explaining the note as a separate matter. From there you can re-upload the file to your own Google Drive. These agreements are not strictly a legal document and the terms vary with jurisdiction. A couple of notes about the template: All variables are highlighted and for you to fill out based on your situation. The unique aspects of a convertible note are: A. Keeping this information organized and up-to-date is critical to making quick, well . "Equity" refers to Securities exchangeable or convertible at the time of Maturity, to be issued by the Company. Exit order Convertible notes are not equity, so technically they do not go into the count of shares. and who owns those securities. Created by Equidam and free for everybody to use. an . For any formal presentation it's the same as a cap table _without_ the convertible note, plus a few rows or a footnote explaining the note as a separate matter. Cap divided by the capitalization of the Company, on a fully-diluted, as-converted basis, immediately prior to such Qualified Financing or Non-Qualified Financing. Convertible Notes Overview . The cap on the discount is set to 25% as an example - you can make it whatever you and your investors agree to. It includes a discounted fully diluted price per share. . Conversion caps in convertible notes can set the price at which notes convert, and thus can greatly affect future financing rounds and the ownership of a company. Entrepreneur: OK, then we are offering preferred equity with a $4 million pre . Pre-Money Cap Table with Convertible Note • Company issues $1M Convertible Note -Conversion Discount 30% -Valuation Cap $5M $ Shares Ownership % Senior Notes $1,000,000 Founders $ 100,000 1,000,000 100% Total $1,100,000 1,000,000 100% 7 Neil R. Milano 8. Conversion to Equity: [User note: Convertible notes typically include a discount of 15-25% against the price per share paid by the investors participating in a qualified financing (as recognition that the noteholders invested at an earlier stage of the company's development).] After you've downloaded the spreadsheet below, you can enter in your expected scenario in the cells with blue font. The valuation cap is an additional reward for bearing risk earlier on. These documents are intended only for US companies. Enter the Convertible Note Details. That means if you and the investor agree to a post-Series A valuation of $3 million, but you actually secure $6 million, the investor has the option to buy shares . me1 13723546v.2 this convertible promissory note and the securities issuable upon conversion hereof have not been registered under the The convertible loan note is initially included as either opening balance sheet debt or new debt. Converting notes: pre-money vs post-money. Convertible Note Term Sheet (Template) This is a convertible note term sheet template developed by an open source law project ( https://sites.google.com/site/opensourcelawproj. . The Notes will be made pursuant to a Convertible Note Purchase Agreement . This Memorandum of Terms represents only the current thinking of the parties with respect to certain of the major issues relating to the proposed private placement and does not constitute a legally binding agreement among the parties. The template works when the number of new shares to be issued is calculated: based on a specific investment amount at a specific pre-money valuation of the company e.g. 1 The typical type of interest for a Convertible Note is Simple. The set includes a convertible debt template, a convertible equity template, and a summary of the key terms in each. The debt version has both valuation cap and . This Note shall convert into equity as defined below, issued by the Company at the time when this note reaches Maturity (as defined below), at a price equal to the "Conversion Price," described in sub-section B. This KISS note template has been created to be flexible without being overly customizable. Sale of the Company: Convertible Note Term Sheet is generally signed at the beginning of the transaction once the preliminary terms of the financing have been agreed, before commencing detailed due diligence and drafting of definitive agreements. Assumes the notes convert prior to the Next Round. convertible promissory note this convertible promissory note has not been registered under the securities act of 1933, as amended (the "act"), or under any state securities law and may not be pledged, sold, assigned or transferred in the absence of an effective registration statement with respect thereto under the act and any applicable . Enter pro forma cap table data, Series A goals, option pool. Convertible Note: Everything You Need to Know Startup Law Resources Venture Capital, Financing. Later financing acquired of an agreed minimum level; Over time I have developed a generic Google Sheet template which given a cap table and convertible note terms calculates Series A conversion scenarios providing insight on how everything will play out. . Definition KISS, which stands for "keep it simple security," is a set of free convertible instrument templates provided by the accelerator 500 Startups. It's that simple. As a general rule, the shorter the term of the Notes and the less risky the investment, the lower the expected discount. on Cap \). Convertible Note Agreement Template. To access the template - > Click Here and go to File -> Download As an excel copy. Conversion rather than repayment is the usual intention of the parties. The Note shall be convertible in accordance with its terms and conditions into shares of the Company's Series Seed Preferred Stock as described on the attached They are often used by early stage startups when closing a seed round, and later stage companies looking for more cash in a 'bridge . Highlights of the changes in this release include: New WHO histologic codes for the Bone / Soft Tissue, Gynecologic, and Thorax protocols. 500 Startups' KISS. For example, you raise £100,000 on a Convertible Loan Note and set the Qualifying Funding Round at £500,000. Also note that the documents were designed for companies incorporated in Delaware. If you invest 800k on 8m cap (800k/8m), you know you will own approximately 10%. Manage your convertible note, seed round and series-a as well as ESOP option pool with this excel . That said, here is the one that we'd recommend as the most commonly-referenced in the industry: COOLEYGO: Series Seed Convertible Note Financing Package template; Other financing options This article explains the implications of a conversion cap for stock ownership and, in turn, later financings. This usually means the process takes less time to close. 1 The typical type of interest for a Convertible Note is Simple. This form also assumes that the borrower is a Delaware corporation. The amount of the convertible note should include any accrued interest accumulated on the loan note since it was issued. The Notes will be issued and sold pursuant to a convertible note purchase agreement prepared by the Company's legal counsel (the "Note Purchase Agreement"). A Convertible Note is a simple promissory note, usually bearing interest and payable at some future date. Who gets diluted? Convertible note holders essentially get paid interest in the form of discounted equity shares, rather than regularly scheduled payments. $50,000 + interest if a convertible note: Your Conversion Price: $.3596: Financing Price: $.5412 Your Shares: 139,043 Your Share Class: Preferred Series A Your Post-financing Ownership.27% Your Share Price Calculation: Numerator = 4,000,000 (your cap) Denominator = 11,000,000 (fully diluted pre-money shares) + 123,444 (new options to be allocated) Pre-money vs post-money conversion is a detail not always included in the terms of a note agreement, yet it can make a massive difference to the outcome of a new round of financing. A Convertible Note Subscription Agreement is a contract with which an investor subscribes to a Convertible Note, a debt instrument that converts into equity under predefined conditions, typically in qualified financing, at a liquidity event, or on a maturity date. However, care must be taken should there be a valuation cap (see the guidance notes in the convertible note / ASA for a more detailed description of how this provision works) because investors may hone in on this as a quasi-valuation. This usually means the process takes less time to close. Time - it is often quicker to do a form of convertible ASA than an equity priced round. Convertible notes are typically issued by newly opened companies (startups) and are frequently used in the seed round of financing. Convertible Note PDF Template A Convertible Note is a type of financial document, which allows companies to exchange equity or other non-tangible assets for a typically short-term loan. Series Seed or Series A). Numerical Example: $25k convertible note with no cap, 20% discount. 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