Do convertible notes convert to common or preferred?

Convertible notes are loans that (ideally) convert into the preferred stock that is sold in a subsequent equity round of investmet. The note might also cover contingencies, such as what happens if the company does not get to the investment by the maturity date of the loan, or if the company is sold prior to conversion.

What does it mean for investors to price the round?

In a priced round, investors purchase newly issued stock in a company at an agreed-upon price per share. A founder may say, “We raised a priced round,” meaning they sold equity in their company in exchange for investment.

Why do investors insist on having an anti dilution clause in term sheets?

To mitigate lower future valuations, investors can insert anti-dilution clauses that act to readjust their ownership stake to avoid receiving too hard a hit.

What is a preferred round?

Preferred Round means a bona fide round of equity financing in which You issue and sell shares of your preferred stock for aggregate gross cash proceeds of at least $1,000,000 (excluding any amounts received upon conversion or cancellation of indebtedness).

How do priced rounds work?

Priced rounds are equity investments based on a negotiated valuation of a company. After agreeing on your company’s valuation, an investor gives you money in exchange for preferred stock in your company at a price per share determined by the valuation.

What is a SAFE investment round?

A SAFE is an agreement to provide you a future equity stake based on the amount you invested if—and only if—a triggering event occurs, such as an additional round of financing or the sale of the company.

What is a pro rata side letter?

​Definition​ Pro rata rights (or pro rata) in a term sheet or side letter guarantee an investor the opportunity to invest an amount in subsequent funding rounds that maintains their ownership percentage.

How post money valuation caps work?

By “post-money,” we mean that the valuation is calculated and Safe holder ownership is measured after all the money invested in the Safe round is accounted for but still before the new money in the priced round that converts and dilutes the Safes (usually the Series A, but sometimes Series Seed).