SeedNOTE: the flexible way to raise in uncertain times
It’s now more important than ever that companies can raise funds quickly and flexibly. That’s why we’re pleased to annou...
A convertible loan note allows you to take loans from investors for startup funding. They can help you raise funding without giving away equity and they’re perfect for investors who want to earn interest on their investment.
In this article, we’ll break down the key things you need to know about convertible debt and how to use a SeedNOTE.
This article covers:
Convertible loan notes (or just convertible notes) are short-term debt instruments. Investors can provide a loan to your company via a convertible note.
Depending on its terms, the convertible note can be either converted into shares (typically at the next funding round) or “redeemed”, which means that you need to repay the investment amount in full, with the agreed interest. The reason they’re called “convertible notes” is because they can be converted into shares.
Being a debt instrument, convertible notes:
It used to be expensive and complicated to raise capital by convertible debt – there was a lot of paperwork involved and you had to keep a register of all the loan note holders. But as part of our agile fundraising revolution, we’ve developed SeedNOTEs as a simple yet powerful way to take in one-off investments.
SeedNOTE allows you to create one agreement to which you can add multiple investors. All you need to do is:
SeedNOTE is a simple way to keep all your convertible loan legals in one, easy-to-use workflow.
Convertible loan notes sometimes get confused with advanced subscription agreements. This is because they’re both agreements you make with investors that help you raise funding before a funding round.
The main difference between advanced subscription agreements (ASAs) and convertible notes is that convertible notes are debt instruments while ASAs are equity agreements. The convertible debt is still capable of being repaid in certain scenarios, and it can carry interest, while a SeedFAST or ASA is not repayable at all.
SeedNOTEs are a win-win for some investors. Where investors are more risk averse (because maybe they’re not so sure about the traction of the company) they may want the option of getting their money back. Opting for a SeedNOTE provides an investor with the opportunity to get their money back, or have it convert to equity.
Agile investment expert,
SeedLegals offers an advance subscription agreement as well as our SeedNOTE convertible agreement. The SeedLegals ASA is called a SeedFAST. Read our full guide on SeedFAST here.
Before you decide that convertible debt is the way to go, factor in the following:
Got questions about convertible agreements? We’ll convert them into answers. Book a call with a funding team expert or hit the chat button.