Can you issue a Convertible Note to be converted prior to series A?


1

Situation:

  • Closed initial kick-start seed investment with angel investor. Deal was done on an equity basis equaling a postmoney valuation of 400k.
  • Have a few FFF who would like to invest small amounts 5-10k each likely totaling 10-25k
  • This amount will carry us through beta-launch and prep going after large sums

For such a small amount comparative to a series A financing, is it possible to state the note will convert whenever the company reaches an x dollar valuation. I'm thinking whenever the valuation is 1000k. This would increase the amount of the equity upon conversion and be a better deal than when the company is valued for series A. Or is a better option to offer a higher discount rate (something like 50%???)

And another question that may be too broad, what is the typical range of pre-money valuations for a Series A?

Investors Seed Funding Stock Options Convertible Note

asked Oct 19 '11 at 12:53
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Eric Littleton
107 points

2 Answers


1

Typically, convertible notes have a 20-50% kicker to the Series A round.

When you do a Series-A, everything will convert to the Series-A price.

You can do a conversion at a certain evaluation but that probably won't fly with a savvy investor. The best thing to do would be to convert everyone to the Series-A once you raise enough money. That way, it's a lot cleaner.

answered Oct 19 '11 at 13:39
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Jarie Bolander
11,421 points

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Isn't part of the point of doing a convertible note to avoid having to figure out the company's valuation? Very rare to have a convertible note convert into something other than Series A, unless it's a company sale.

Odd. Don't do this- just give a bigger discount.

answered Dec 20 '11 at 15:28
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User6492
1,747 points

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Investors Seed Funding Stock Options Convertible Note