2025

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When negotiating convertible notes, parties typically focus on the terms of conversion upon an equity financing, most notably the discount and valuation cap.  This is understandable inasmuch as the not-so-hidden secret of convertible notes is that no one wants the notes to ever get paid.  The investors are not seeking interest on their investment.  The goal is for the company to attract venture capital investors in the near future, do a priced round and then to have the notes convert into that round at a discount.

Not enough attention, however, is paid to what happens upon maturity, assuming a qualified financing, non-qualified financing or corporate transaction has not occurred that would result in conversion prior to maturity.  As a general matter, three possible scenarios could occur upon maturity of a convertible note: conversion into common, repayment of the note and extension of the maturity date. 

A recent case in Delaware involves a dispute between a company and its convertible note investors over the noteholders’ rights upon maturity.  The case serves as a cautionary tale to investors and companies alike as to the importance during the negotiation process of paying close attention to what happens upon maturity. At the risk of getting tedious, the background details are worth reviewing.Continue Reading Beyond the Discount: Why Maturity Terms Matter in Convertible Notes

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I’m often asked whether employees should have access to the company’s cap table.  The cap table is one of the most sensitive and critical documents in any startup.  At its most basic level, it lays out who owns what – founders, investors, employees, consultants. It typically contains information about outstanding shares, convertible instruments, pricing, valuation and ownership dilution. More complex cap tables may include formulas that model out various hypothetical transactions such as new funding rounds, sales of the company or public offerings, and may provide details on the holdings of each individual owner and each individual type of security.

Traditionally, access to the cap table is tightly controlled, with only a select few in the company being privy to its contents. However, as demands are made for more transparency, the question arises as to whether employees should have access to the cap table.Continue Reading Cap Table Confidential: Should Startup Employees Get a Peek?