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Startup Seed Financing Process: Convertible Notes and SAFEs | Practical Law

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October 18-20, 2023 / Tucson, AZ
The annual summit for research institution gap fund and accelerator programs, including proof of concept programs, startup accelerators, and university venture funds

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Great overview of two gap funding investment instruments….encourage you to read…..
Convertible notes are the most commonly used financing instrument for startup companies raising seed capital. This Practice Note describes the process of a typical convertible note financing for a seed-stage startup. However, the following description of the seed financing process is largely the same when a startup chooses to use simple agreements for future equity (SAFEs) to raise seed capital instead using of convertible notes. The only differences in process between a convertible note financing and a SAFE financing are that the documents are slightly different and SAFEs are predominantly issued as stand-alone instruments, not as facilities like convertible notes (see Financing Documents). For a form of SAFE, see Standard Document, SAFE: Simple Agreement for Future Equity (Seed-Stage Startup).
Alternatively, if a company structures its seed financing using convertible preferred stock, the documents and process are much more similar to those of a Series A financing than to the process outlined in this Practice Note for convertible notes. For information on seed financings using convertible preferred stock, see Practice Note, Startup Venture Finance: Overview: Convertible Preferred Stock.
This Note assumes that the company raising capital is a startup organized as a Delaware C-corporation. The Note also assumes that these securities are issued in private placements to accredited investorsand not in offerings registered with the SEC. For detailed information on securities law considerations for companies undertaking private placements, see Practice Note, Section 4(a)(2) and Regulation D Private Placements.
The convertible notes discussed in this Note should not be confused with the convertible notes or bonds that are sometimes issued by reporting companies or other more established businesses. For information about those convertible securities, see Practice Note, Convertible Bonds: Overview.
For an overview of seed financings generally, see Practice Note, Startup Seed Financings: Overview. For a detailed description of key terms and provisions of the convertible notes and SAFEs used in startup seed financing rounds, see Practice Note, Startup Seed Financing Instruments: Convertible Notes and SAFEs. Also, the Startup Seed Financing Toolkit lists all Practical Law resources related to seed financings, and the Startup Company Toolkit lists other resources related to startups.

Keep reading here….: Startup Seed Financing Process: Convertible Notes and SAFEs | Practical Law

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