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Learning all about Convertible Note Seed Financing

Convertible Note Financing from The Startup Garage

Techcrunch just began a 3-Part series addressing convertible note seed financing that we feel our readers would be very interested in. But wait, what’s convertible note seed financing??

According to their blog, “a convertible note is short-term debt that converts into equity.  In the context of a seed financing, the debt typically automatically converts into shares of preferred stock upon the closing of a Series A round of financing.” In layman’s terms, investors will give money to a startup but instead of getting money back, they get preferred stock in return.

The article we read is part 1 of the series and addresses basic questions like (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?

Part 2 will discuss the two most significant issues for founders in connection with the issuance of convertible notes: (i) the valuation cap and (ii) the discount (and how they interrelate).

Part 3 will cover certain special issues, such as (i) what happens if the startup is acquired prior to the note’s conversion to equity? (ii) what happens if the maturity date is reached prior to the note’s conversion to equity? and (iii) what securities laws do founders need to worry about in connection with the issuance of convertible notes?

Interested? Read the 3-part series at Techcrunch!


Whether you have a question about Convertible Note Seed Financing, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!