Scott Edward Walker

APRIL 9, 2012

ii) why are convertible notes issued instead of shares of common or preferred stock? and (iii) what are the advantages of issuing convertible notes? In the context of a seed financing, the debt typically automatically converts into shares of preferred stock upon the closing of a Series A round of financing.

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

Scott Edward Walker

JUNE 9, 2011

As many of you know, VC investors are typically issued shares of preferred stock, not common stock. Indeed, preferred stock, as the name suggests, is preferable to (and more valuable than) common stock because it grants certain key rights to the holders, one of which is a conversion right.

Term Sheet 60

Term Sheet Conversion Rights Venture Capital Liquidation Preference 60

Scott Edward Walker

APRIL 22, 2012

ii) why are convertible notes issued instead of shares of common or preferred stock? and (iii) what are the advantages of issuing convertible notes? The math can be tricky, but the bottom line is that noteholders without a cap do not share in any increase in the value of the startup prior to the Series A round.

Pre-Money Valuation 72

Pre-Money Valuation Finance Liquidation Preference Founder 72

Scott Edward Walker

SEPTEMBER 21, 2011

Finally, unless the startup is raising at least approximately $750,000, it generally is not in the company’s interest to issue shares of preferred stock. What about issuing shares of common stock? the pricing) until the Series A round. a set value at which the notes convert).

Preferred Stock 45

Preferred Stock Angel Investor Entrepreneur Common Stock 45

Scott Edward Walker

MAY 15, 2012

What Happens If a Startup is Acquired Prior to the Note’s Conversion to Shares of Preferred Stock? As discussed in part 1 , in the context of a seed financing, a convertible note is a loan that typically automatically converts into shares of preferred stock upon the closing of a Series A round of financing.

Finance 64

Finance Founder Accredited Investor Preferred Stock 64

www.mattbartus.com

DECEMBER 9, 2012

an option to purchase shares in the future at a pre-determined price) to the investor to purchase preferred stock at the Series A price. Prior to the VC’s exercise of the warrants, the founders will actually own 67% of the issued shares because the warrant shares are not outstanding until the warrants are exercised.

Warrant 40

Warrant Valuation Pre-Money Valuation Term Sheet 40