Documents for a Friends & Family Convertible Note Round
Today, I continue the thread of discussion on raising money in an early stage startup.
In 2009 and 2010, we raised $400,000 in a Friends & Family convertible note round. The investors in that round included literal friends and family as well as several established angel investors, with check sizes ranging from $4,000 to $100,000.
I was happy with the legal documents we used for this raise and share them here for anyone else who is working on a convertible note round. Though fairly verbose, the documents are straightforward to modify for your own purposes. Here are the documents along with a description of their purpose
- Purchase Agreement – the main document outlining the general conditions
- Form of Note – the document governing the note the investors hold prior to conversion to equity
- Form of Warrant – the document governing the conversion of the notes to equity upon a triggering event (typically the raising of a Series A is the trigger)
In our case, we paid back our notes with 8% interest rather than raise a Series A investment, and these documents are no longer active in our business.
Convertible note rounds are a great way to raise a few hundred thousand dollars without the added complications of equity investing and requirement to value the early stage company. Convertible notes also protect the investors and reward them with favorable equity conversions relative to the Series A investors.
Update: I posted the terms of these documents in another post.
How have you structured convertible note rounds in your business?