Elisha Offers Promissory Note with Conversion + Redemption

elisha rap
Originally uploaded by benbarren.

Brad Feld talks about how startups can fund themselves and use angels. I wonder if he's talking about Judy'sBook or another company ? Sounds vfamiliar : "Convertible Debt: This is the easier approach of the two. In this case, the investment is in the form of a promissory note that converts into equity on the terms of a “qualified financing” (where qualified financing typically is defined by having a minimum amount – say $1m of total investment.) The note will either convert at a discount to the price of the qualified financing (usually in the 20% – 40% range), will have warrant coverage (usually in the 20% to 40% range), or both. This discount and/or warrant coverage gives the angel investors some additional ownership in exchange for taking the early risk. This note should be a real promissory note with the conversion and redemption characteristics clearly defined to protect both the investors and the entrepreneurs from any misunderstandings."