Convertible Note

A Convertible Note allows you to raise money without hassle from investors using valuation caps and discounts

Overview

A convertible note is a debt instrument that companies utilize to raise initial or “seed” funding. It is a popular way for investors to invest in a business that is in its formative stages. A convertible note is structured similar to a loan, the only difference being that it converts into equity after the business becomes more established either by acquiring more funding or reaching a particular milestone.

Convertible notes were pioneered to allow founders to get a quick loan from private investors in exchange for promising to repay those investors with stock at a later time when the price could be determined - normally, after a Series A funding round. Convertible notes have been touted as a “best of both worlds” deal; both a startup's perspective as well as from the investor’s perspective. They not only protect investors but also the businesses as well by allowing them to be valued more than their present value. One thing is for certain though; convertible notes are complex and should be drafted with the guidance of an experienced financing attorney.

How legal advice can help

Hiring a good lawyer will provide vital assistance in almost every aspect of your business. 
Confirm best form of funding
There are other options for companies - such as equity financing - and a lawyer can assess if a convertible note or equity raise is right for your business better.
An attorney to turn to
With things like fundraising, it’s convenient and efficient to use the same attorney throughout. It’s smart to introduce an attorney to the process at an early stage such as the issuance of a convertible note.
Learn about useful terms
An experienced lawyer has assisted startups with this process already and can suggest terms that have worked in the past.
Prevent future issues
Receive proactive legal risk management that will help you avoid problems before they arise by tapping into senior attorneys with considerable business experience.

What’s included

Consultation with an experienced startup attorney
Convertible promissory notes
Note purchase agreement
Board consent 

Average Costs

The cost can vary based on a number of different things.
To get an exact price for your business click here.

$500 - $3000

*figure show is an average. costs may vary.

Common Questions

What’s the difference between a convertible note and an ordinary loan?
What distinguishes a convertible debt note from an ordinary loan are two key characteristics: (1) the discount, and (2) valuation cap. The discount is a feature that rewards early investors for taking larger risks than later investors. It does this by offering them the right to obtain shares at a cheaper price than that paid by Series A investors, once that round closes. The conversion cap similarly rewards early investors for their disproportionate risk, but in a different way than the discount. The cap sets the maximum value of a company when Series A closes, again giving an advantage to earlier investors.
Who are the types of investors interested in convertible notes?
Common investors include friends and family, angel investors, venture capitalists (VCs), crowdfunding websites, peer-to-peer lenders, and institutional lenders.
What happens to convertible notes if a company is acquired before the notes mature or are converted in an equity financing round?
The most common scenarios are: (1) the note gets repaid at a premium (principal + interest + premium); (2) the note gets repaid as an ordinary loan (principal + interest); or (3) the note converts according to its terms. A financing attorney can provide keen insight regarding which structure is most advantageous for your particular situation.
What are some material terms and parameters to include in a convertible note?
It’s common for the following terms to be included in a convertible note: 1) class of security (what the note will convert into); 2) conversion triggers; 3) the interest rate on the note; 4) whether the note will be secured; 5) warrants (gives the holder the right to purchase a company’s stock in the future at a per share price that is typically set at the time the warrant is issued); 6) valuation cap; 7) discount rate; and 8) the next equity financing.
What is the Qualified Round?
A Qualified Round is an equity deal that triggers conversion of the convertible note. There is usually a minimum amount of proceeds that need to be raised in the next round of financing in order for the investor's note to be eligible for conversion.
What does a “Most Favored Nation” clause in a convertible note mean?
A most favored nation clause (also referred to as a “MFN clause”) allows the convertible note holder to elect more favorable terms that are offered to any subsequent investors following the original investor’s investment and prior to a next equity round.

HOW OUR PROCESS WORKS

Describe need.
We’ll have a brief but detailed discussion to understand your needs and provide you with an upfront price quote.
Meet attorney.
To match you with the best lawyer, we tailor our search to the specific skills you’re looking for. It's simple and easy.
Review & accept.
We hold your funds and only release it to the attorney when you’re 100% satisfied with the work product.

LawTrades Business Attorneys

Discover our invite-only network of senior attorneys. Great companies
depend on our expertise for critical legal work. 
Jonathan Hood
New York, NY
⭐️⭐️⭐️⭐️⭐️ 
(39 Reviews)


"From my initial contact with Jon and with each successive correspondence we've had, Jon has been detailed, patient, and easy to talk to. Most importantly, he understood the startup space and knew right away what needed to be taken care of."





-Billy S.
Philip Heller
San Francisco, CA
⭐️⭐️⭐️⭐️⭐️ 
(19 Reviews)


"Philip designed a thorough Terms of Service and Privacy Policy for my website that was directly tailored to my business. The project was completed on time and to my expectations. I will definitely use this service again." 


  



-Virginia A.
Jared Stark
Boca Raton, FL
⭐️⭐️⭐️⭐️⭐️
(23 Reviews)


"Jared was very knowledgeable and an overall pleasure to work with. He provided very quick turnaround and made sure all of our legal needs were satisfied. I would highly recommend his services to anyone else in the internet industry."




-David N.
Adam Bloom
Los Angeles, CA
⭐️⭐️⭐️⭐️⭐️
(12 Reviews)


"Adam is excellent at what he does, has fair pricing, and is as excited to work with our company as we are to build it. LawTrades also has excellent customer support, and I've enjoyed using the interface as well to track invoices."






-Abhi H.

What people are saying..

Focused heavily on customer experience, we believe what you think and say matters most.
After helping thousands, here's what just a few people had to say.
"LawTrades is a great service for entrepreneurs. We're partnered with them and we recommend their platform to our readership of 100k plus."
Sam Parr
Hustle
"We are thrilled with the pricing and overall experience of using LawTrades.We have used LawTrades nearly a dozen times and will continue to do so in the future."

David Nelson
Motion Ai
"LawTrades makes the process of getting the legal assistance super straightforward."
Paval Tiunov
Statsbot
"LawTrades offered great, efficient service at the price point we wanted. We were very happy with their ability to connect us with a top attorney, and would use them again for ad-hoc legal projects. Recommend!"
Sarah Kettler
SeatGeek
"Very fast and responsive, saved us $4000 instantly comparing to other quotes we received. Thanks LawTrades!"

Quan MT
Beeketing
"LawTrades helped connect us with the right legal professional for our project within minutes - we obtained a quote and started working within hours. Our experience couldn't have been better."
Brandon Foo
PolyMail
Ready for a Lawyer to Draft a Convertible Note?