Nov 20th, 2023
Jan 29th, 2013
Over the last decade, convertible promissory notes (also known as convertible debt) (“Notes”) have become probably the most popular way to invest in seed rounds of start-up and early stage companies.
Recently, I have read a number of posts criticizing the use of Notes. While it is true that Notes are not right in every circumstance, I believe they are still very useful in the right circumstance, and offer a number of benefits, including the following (nothing earth shattering here, simply a reminder of some good features of Notes):
Conversely, there are two arguments that I often hear in favor of Notes that I do not believe to always be true, namely that they are simpler than an equity purchase in terms of documentation, and cheaper. If this is the reason you are choosing this vehicle, I suggest giving more thought to other considerations.
Adam Saskin is a corporate lawyer at Spiegel Sohmer with extensive experience representing both early stage companies and investors.