Understanding the Key Terms Peter Papagianakis e: - - PowerPoint PPT Presentation

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Understanding the Key Terms Peter Papagianakis e: - - PowerPoint PPT Presentation

Feb 17, 2023 334 likes •431 views

CONVERTIBLE NOTES: Understanding the Key Terms Peter Papagianakis e: pp@BLawFirm.com web: www.BLawFirm.com Business Law Firm LLC 22 Jericho Turnpike; Suite 100-East 1375 Broadway (37 St.); Suite 300 New York, NY 10018

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CONVERTIBLE NOTES: Understanding the Key Terms ¡

Peter Papagianakis

e: pp@BLawFirm.com

Business Law Firm LLC

web: www.BLawFirm.com 22 Jericho Turnpike; Suite 100-East 1375 Broadway (37 St.); Suite 300 Mineola, NY 11501 New York, NY 10018 Legal Strategies and Solutions t: 516-280-8600 t: 646-862-1210 to Protect and Grow Businessessm f: 516-740-0761 f: 646-292-5121

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I. Background Basics

  • II. Benefits of Convertible Note vs Equity
  • III. Key Terms
  • IV. Ancillary Documents
  • V. Basic Securities Laws Issues

Peter Papagianakis Business Law Firm LLC www.BLawFirm.com

CONVERTIBLE NOTES: Understanding the Key Terms

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  • I. Background Basics
  • Promissory note = obligation to pay loan

unless it “converts’’ √ generally when Series A financing occurs (“bridge” between seed stage and Series A)

  • Angels (or certain F&F)

Peter Papagianakis Business Law Firm LLC www.BLawFirm.com

CONVERTIBLE NOTES: Understanding the Key Terms

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  • II. Benefits of Convertible Note vs. Equity
  • Avoid valuation (but see “Cap on

valuation”)

  • Avoid dilution (but see “Capitalization

table’’)

  • Quicker funding because less

documentation/ negotiations/attorney fees (but see “Seed Equity Documents’’)

Peter Papagianakis Business Law Firm LLC www.BLawFirm.com

CONVERTIBLE NOTES: Understanding the Key Terms

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  • III. Key Terms
  • Principal amount
  • Interest rate
  • Maturity date
  • Conversion*
  • Conversion discount*
  • Cap on valuation*
  • Payoff upon pre-conversion exit/sale of company
  • Unsecured (vs. secured)

Peter Papagianakis Business Law Firm LLC www.BLawFirm.com

CONVERTIBLE NOTES: Understanding the Key Terms

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  • IV. Ancillary Documents
  • Note Purchase Agreement
  • Term Sheet

Peter Papagianakis Business Law Firm LLC www.BLawFirm.com

CONVERTIBLE NOTES: Understanding the Key Terms

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  • V. Basic Securities Laws Issues
  • Regulation D
  • crowd-funding
  • general solicitation

Peter Papagianakis Business Law Firm LLC www.BLawFirm.com

CONVERTIBLE NOTES: Understanding the Key Terms