Both Sides of the Table
MAY 15, 2010
Clearly a startup should consult its lawyer before filing or not filing.But the attorneys I relied on to write this piece told me that they’ve done lots of Section 4(2) deals in the past, and would recommend it to clients who had relatively simple financing agreements (not tranched-out, not too many investors, etc.) Short answer: no.
Gust
SEPTEMBER 29, 2011
It should therefore come as no surprise that an asymmetry of information exists, mostly gleaned from experience, between founders and investors in a venture financing deal. A term sheet for a convertible note deal may run two or three pages, versus 8-10 pages for a typical Series A Preferred Stock financing.
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Professor VC
APRIL 7, 2011
We werent able to declare a winner, but I did agree to write a blog post on the topic. This will also serve as a good pointer for all the entrepreneurs who ask why I am not interested in their company led convertible note financing round. This can make it much more difficult to get any bank financing, new investment, and trade credit.
K9 Ventures
MARCH 23, 2011
The convertible note was really intended as an instrument for a “bridge financing” – when an equity round was imminent, and likely to occur, but the company needed some money in between. In that case, it made good sense to have a debt instrument, where the note holder then converted into equity when the financing occurred.
venturehacks.com
OCTOBER 21, 2010
Reading on, the term sheet states, “The $8 million pre-money valuation includes an option pool equal to 20% of the post-financing fully diluted capitalization.&# That does work if the company gets sold before another round of financing. This can be done on any financing or M&A event.
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