Convertible Notes For completing the investor package.
Convertible Note Packages
Sometimes new companies and their founders don’t need large amounts of capital or just need enough to get their product tested, their concept proven, their patents or trademarks secured, their business plans created or their SEC securities documents (e.g. PPMs) created.
If the company expects to issue stock or securities to investors at a later time, the most common way to raise early capital is to offer the investor a Convertible Promissory Note (a “CPN”). There is a series of documents that are typically provided to the investor who is giving a loan to the company with a CPN. These documents are provided in a package and include: a Term Sheet that describes how the CPN will work, a Contract to buy the CPN, the CPN document itself, a Security Agreement (like a mortgage) to secure the payment of the CPN, and some other disclosure documents.
This whole package of documents is usually provided to the CPN investor with a Business Plan or Executive Summary that describes the company’s business. The outcome of a CPN deal is that once the company finally issues its stock or securities, the CPN investor is provided and option to get their money back or convert their loan into equity. The bonus for the CPN investor is that he or she can convert their note for a discounted stock purchase price. This is provided as an incentive for helping the company out in its early stage of growth. Our team has experienced SEC attorneys who can help you with your CPN package.