From Idea to Success: The Dartmouth Entrepreneurial Network Guide for Start-Ups by Fairbrothers Gregg & Winter Tessa

Author:Fairbrothers, Gregg & Winter, Tessa [Fairbrothers, Gregg]
Language: eng
Format: mobi, epub, pdf
Tags: Itzy, Kickass.so
ISBN: 9780071763455
Publisher: McGraw-Hill
Published: 2011-07-19T04:00:00+00:00

The Convertible Note

An alternative form of investment for early stages—friends and family and angels alike—is the convertible debt instrument, which helps with both the legal costs of closing and the difficulty of valuing the company. This is a simple document of no more than a few pages that often can be done from an attorney’s boilerplate. Essentially, the investors lend money to the company (not the founders personally), with the provision that at the next round of funding they will get the same kind of equity shares as the next-round investors but will pay a discount on the share price—or, what amounts to the same thing, get more shares for the same price—to compensate for the added risk they took by investing early. A sample term sheet for such a note might look something like Figure 12-1:

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