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A Convertible Agreement lets early-stage investors fund a startup now while deciding the exact investment terms later. It works like an IOU that can turn into equity shares when specific events happen, usually during the next major funding round or company sale.

These agreements help startups raise quick capital without setting a firm company valuation upfront. Investors typically get a discount on future shares and sometimes a valuation cap as rewards for their early support. Under U.S. securities laws, these instruments must follow specific disclosure and registration requirements, making them popular with both Silicon Valley startups and angel investors.

Use a Convertible Agreement when your startup needs quick funding but setting a firm valuation feels premature. This typically happens during seed rounds, bridge financing, or when you're between major funding events. It's especially valuable when your company shows promise but lacks the revenue or metrics needed for traditional equity pricing.

Many founders choose Convertible Agreements during rapid growth phases or when negotiating with angel investors who understand startup dynamics. The flexibility helps close deals faster than standard equity rounds, while giving investors potential upside through discount rates and valuation caps. Just ensure your agreement complies with SEC regulations on private securities offerings.

• Simple Convertible Notes: Basic debt-to-equity conversion with standard interest rates and maturity dates. Perfect for straightforward seed rounds.
• SAFE Agreements: More founder-friendly than notes, with no interest or maturity date. Popular among Y Combinator startups.
• KISS Agreements: Balanced approach between SAFEs and notes, offering debt-like features with simplified terms.
• Bridge Notes: Short-term convertible funding designed to carry companies between major rounds, often with higher interest rates.
• Revenue-Based Notes: Convert based on revenue milestones instead of equity rounds, common in bootstrapped companies.

• Startup Founders: Lead negotiations and sign agreements to secure early-stage funding without immediate equity dilution.
• Angel Investors: Provide seed capital through convertible instruments, often taking on higher risk for better future terms.
• Corporate Attorneys: Draft and review agreements to ensure SEC compliance and protect both parties' interests.
• Investment Advisors: Guide clients on terms, valuation caps, and conversion triggers.
• Company Board Members: Approve convertible funding rounds and oversee proper execution of conversion events.

• Investment Terms: Determine valuation cap, discount rate, and interest rate (if applicable) through investor negotiations.
• Company Details: Gather current capitalization table, corporate documents, and financial statements.
• Conversion Triggers: Define qualifying financing thresholds and other events that prompt conversion.
• Security Laws: Review SEC requirements for private securities offerings in your jurisdiction.
• Investor Rights: Specify information rights, pro-rata rights, and any special provisions.
• Documentation: Use our platform to generate a legally sound Convertible Agreement that includes all required elements.

• Principal Terms: Investment amount, valuation cap, and discount rate clearly stated.
• Conversion Mechanics: Detailed triggers, calculation methods, and share class specifications.
• Maturity Date: Timeline for automatic conversion or repayment if no qualifying event occurs.
• Rights and Preferences: Information rights, pro-rata rights, and investor protections.
• Securities Compliance: Required SEC disclaimers and acknowledgments.
• Amendment Terms: Procedures for modifying agreement with majority holder consent.
• Governing Law: Jurisdiction and venue for dispute resolution.

While Convertible Agreements transform investment into future equity, they're often confused with Business Acquisition Agreements. Both involve company ownership changes, but they serve distinct purposes and situations.

• Timing and Purpose: Convertible Agreements are forward-looking instruments for early-stage funding, while Business Acquisition Agreements execute immediate ownership transfers.
• Valuation Requirements: Convertible Agreements deliberately delay valuation until a future event, whereas Business Acquisition Agreements require immediate, firm valuations.
• Complexity Level: Convertible Agreements are typically shorter and more flexible, focusing on conversion terms. Business Acquisition Agreements involve extensive due diligence, representations, and warranties.
• Risk Profile: Convertible Agreements carry uncertainty about future conversion terms, while Business Acquisition Agreements provide immediate clarity on ownership and terms.