Convertible Note Term Sheet

One way in which a startup company can raise capital is through a convertible loan. This loan will convert into equity at a later trigger event (for example, the company going public). An investor will typically issue a convertible note agreement, accompanied by a convertible note term sheet.

While the convertible note term sheet is not legally binding, it is morally binding. However, once agreed upon, it usually forms part of the final investment agreement.

Use this Convertible Note Term Sheet if:

• You are preparing for Seed Round investment and would like to set out the negotiated and key terms to an investor to join your business;

• You are doing so under a convertible loan arrangement.

What does this Convertible Note Term Sheet cover?

Convertible notes are particularly good for investing in companies without value. As the share prices rise, so does the amount the investor gains. However, as it is a new company there is a significant amount of risk born by the investor. Hence, the features of the note look to compensate for that risk. These features include:

• The discount rate: a promise that when this conversion occurs, the investor will receive their shares at a lower price.

• The valuation cap: a restriction on the price the investor will pay per share.

• The interest rate: unlike SAFE notes, convertible notes will accrue interest. However, this interest also becomes equity at conversion.

• Additional optional conditions relating to inclusion and sustainability.

Further information

• What is a convertible note?

• Advantages and disadvantages of a convertible note

• Difference between a SAFE note and a convertible note