We often hear a convertible note (or SAFE) is the best fundraising strategy for your seed round because it can help defray a low valuation. Convertible notes became more wide-spread after the 2008 recession and will likely be seen more and more as COVID 19 continues to impact the economy. But are convertible notes always the best options for companies?
Before companies commit to a convertible note or SAFE, they should consider how valuation caps, valuation overhangs, change in control premiums, and costs can impact them both in the immediate and as they go to raise later rounds. Read more…
While convertible notes and SAFEs may seem to put off the valuation question, often companies are giving up more than they would in an equity round. Companies should look at 4 key considerations.
Convertible notes and SAFEs are not always the best deal for companies, however, they can be used strategically. Companies can use a convertible note or SAFE to jump-start a round or as a bridge between rounds.
How do you use a convertible note to jump start a round? Use the positive terms of a convertible note to attract key investors, secure board members, or incentivize early investors.
From startup to exit, we do big deals. We know that starting a company is hard and we’re here to grow with you. Whether you’re looking for advice on growing your business, putting together your formation agreements, negotiating your Series A term sheet, or taking your company public, Cara Stone attorney’s are here to help.