Death of the Convertible Note

Early-stage tech companies generally rely on three equity fundraising structures.

1. The Safe from Y Combinator.
2. The Series Seed financing documents.
3. The NVCA financing documents from the National Venture Capital Association.

Another very popular option if you were raising less than one million dollars was the convertible note. Recent trends suggest that the convertible note is officially being put out to pasture, and for good reason.

Early-stage investing in technology companies is an incredibly risky bet. The convertible note attempts to protect these investments with unnecessarily complex downside protections.

Further, and most problematically, the industry has not coalesced around a standard form, making the negotiation of convertible notes too complex.

The better option for early-stage startups is the Safe. You don’t have to negotiate many deal points. And if you really want to simplify the process, you can consider using the MFN Safe.

Originally published at https://www.lawbylevin.com on September 17, 2020.