Whatever stock-type transformation characteristics described above, it is important to remember that convertible debt securities are due. They appear as such in the company`s balance sheet. They`re interested. Unless amended, they must be repaid until their respective maturities. These terms naturally accompany debt and there is nothing wrong with accepting them by nature. The terms of the debt may therefore be somewhat incompatible with the spirit of seed internship investments. One of the reasons convertible bonds can be convertible is that, given the risks associated with seed internship investments, it is difficult to retain an interest rate that is both low enough to be controlled by the company and high enough to attract investors. In other words, convertible bond investors are not included for interest; they only really earn if the business is doing well and the convert permit is converted to equity. As a result, even when convertible debt maturing and debt matures, bondholders tend to extend the maturities of their bonds, because if they do, there is a chance that the business will succeed and, if they do not, there is near certain assurance that the business will fail (and probably will not be able to repay the investor).

The Seed Documents series is a standardized set of documents that can be provided quickly and easily for a seed investment: to finance a business properly, legally quickly and intelligently. I chose the latter approach for a number of reasons. First, I thought it would be best to make these documents as simple as possible. Second, I wanted the documents to be readable (readable as opposed to the lawyer) and there are some provisions of a vanilla set of Series A funding documents that are simply too dense for most civilians to pass through (for example. B, price-based dilution). Third, while simpler documents require more optimization in the next funding cycle, the next funding cycle should be a larger cycle of resources in which such investments would be appropriate. Let`s say that using simpler documents saves 10% of the time and money associated with seed financing. Even though it takes 20% extra time to add a full set of rules to the next round, it`s a good deal, because (a) less than 50% of sperm-financed companies arrive in the next round, and (b) the dollars in the next round are cheaper at that time, because it is a larger fundraiser. Share Purchase Agreement – This agreement affects the sale of the company`s preferred shares to the venture capital fund. So far, several smart people have spoken or blogged to reduce transaction costs associated with seed internship investments without gathering around a particular attack. Of course, entrepreneurs and investors would prefer that their investment dollars be used for the development of a new product and its marketing rather than for routine transaction fees.

The problem has been to produce a number of documents that offer adequate protection without being excessively restrictive. [more…] Recognizing that convertible debt securities are primarily used for their equity-type characteristics, leading start-up accelerator YCombinator has developed an alternative financial instrument called Simple Agreement for Future Equity or SAFE. A SAFE is essentially a convertible debt with distant characteristics of the debt. Like convertible bonds, FAS converts equity based on the price of the entity`s next equity financing and whether SAFE has a valuation cap, discount or both. Unlike convertible bonds, FAS has no interest and no maturity date. In the absence of a due date, FAS can remain on hold indefinitely without converting it into equity. From the company`s point of view, this protects the company from investors who use the threat of a default for profit