Navigating startup finance can feel like solving a complex puzzle. With countless financing options, it’s easy to get lost. Imagine 16% of startups fail due to financial problems. But there’s one tool every founder should know: the convertible note. It can significantly impact your startup’s journey.
Now you might wonder, “Why should I learn how to create convertible note agreements?” This straightforward mechanism offers a cost-effective way to secure capital and future equity.
This guide to convertible notes provides strategies for writing a legally binding and fair agreement. Read on to understand the basics.
Table of Contents
Convertible note agreement creation is a bit like baking a cake. It might seem a bit tricky at first, but with the right ingredients and careful steps, you can whip up something pretty impressive.
1. You are starting with the basics – the main amount your startup is borrowing and the interest that adds up over time. Think of these as your flour and sugar.
2. Next up, add some eggs and butter – The nitty-gritty of how the loan morphs into equity. Spell out the ‘when’ and the ‘how,’ including the price at which the debt will turn into shares in your startup.
3. And like any good recipe, it’s always wise to have a backup plan, like what happens if your startup is sold before the loan gets a chance to convert.
Don’t forget the possible scenarios where your startup might want to repay the loan before it’s due or turns into equity. It’s like deciding whether to ice your cake before it’s completely cool – sometimes it’s allowed, and other times there might be penalties.
Remember, while you might know your way around baked goods, drafting convertible note agreements is a different ball game.
When in doubt, it’s always wise to call a professional, a legal counsel – to ensure everything is shipshape and in line with all the relevant rules and regulations.
Below is a preview of Convertible Note Agreement Form. Use this form for free when you sign up for a Fill account.
convertible note agreement
