funding, seed, convertible-noteI’ve received an offer to invest in a startup via a convertible note. The offer includes a cap, discount rate, and interest rate, and I understand how those work.
I’m curious if the startup can offer different note terms to different investors. For example, could the startup offer me a 20% discount and offer another investor a 25% discount?
If the startup can offer different terms to different investors, does the startup have to disclose that to me?
What kinds of disclosures does a startup typically make to an investor to allow the investor to evaluate a convertible note opportunity?
I would usually consider a convertible note to be an entire funding round in itself. So if the funding is being done via a convertible note I would expect all parties involved in the round to be negotiating on the same terms with the same discounts and a single agreement settled upon. Or if it is a mixed round then everyone has to be aware of everyone elses terms and must agree on them.
it then goes into your cap table as a round of investment.
If I had negotiated a convertible note with a company and they then went out and offered a different note to a new investor at a different discount then I would consider this a new round of investment, which will often trigger the conversion clauses in the note.
So, in the example you give you would get your 20% discount on the round that includes the new convertible note, and they would get their 25% on the round after that.
The types of disclosure I would give an investor in order for them to evaluate an opportunity would usually be anything I am legally allowed to show them that they ask for (certain legal documents around the formation of the business cannot be shared). Other than that which they ask for I’d be showing the current financial position, sales funnel, cap table, future plan, what I would be doing with their money.
In my investment pack that I sent to prospective investors was a 10 slide ‘deck’ giving them some of the above information and financial forecasts produced between myself and my accountant.
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