Change topic in the Convertible Note Agreement Template

Aug 6th, 2022
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How to change topic in the Convertible Note Agreement Template

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youre at the early stage of your company and youre thinking about raising funds now there are a lot of ways that you can go about fundraising but it can be a lot to wrap your head around you might have heard the word safe or convertible note get thrown around but youre still fuzzy on how they actually work so in this edition of no fear equity were going to take you through every detail you need to know about raising convertible notes and safes so that you can make sure you know exactly what youre getting into when you start talking to investors lets get into it now most people when raising funds think about it in really basic terms an investor gives you money and in exchange you give that investor equity aka a percentage of the business or shares of the company each one of these shares is worth a certain amount of money i.e if the investor gives you 100 in exchange for 100 shares then each share is worth one dollar because theres a price on each share this method of raising fund

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Another risk of convertible promissory notes to a company is if a convertible note is not converted into equity before maturity, investors could demand that the note is repaid with principal and interest. This could potentially put the company into bankruptcy.
An automatic conversion clause is a provision that allows for the automatic exchange of preferred stock or convertible debt for common stock in a company. The conversion is considered automatic or mandatory because it does not require a vote of the board of directors for the conversion to take place.
Convertible notes can be issued to any eligible investor, regardless of their nationality or residency status. This means that convertible notes can be issued to foreign investors, NRIs (Non-Resident Indians), resident Indians, Indian investors, and Indian companies.
If a company raises money on a note and the company fails, the investors are creditors, getting money back prior to any shareholder and any creditor that doesnt have security or statutory preference. In almost every case, convertible note holders in these situations would be lucky to get pennies back on the dollar.
Change of Control: If the company is sold before a Qualified Financing takes place, a convertible note may provide that the amounts outstanding on the note will either: (i) convert into common stock at an agreed upon Cap immediately prior to the Change of Control (so that note holders can share in sale proceeds as
Generally, convertible notes convert into shares (the Conversion Shares) at a qualified equity financing round (this term should be defined in the note and usually means a preferred financing round of a minimum size) at the lower of two different prices per share: (1) the price per share using the conversion cap (
Structuring a convertible note requires careful consideration of key elements. Typically, convertible notes feature the principal amount, interest rate, maturity date, and conversion terms. The conversion discount and valuation cap are crucial components influencing the conversion of the note into equity.

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