Ask a MoFo: Comparing Convertible Notes to Safes

Startups of all sizes and at various stages of their lifecycles need to raise capital. While selling shares may sound the simplest, doing so directly is not always the most efficient or appropriate choice. While seemingly straightforward, raising capital by issuing priced equity requires agreeing to a fixed valuation of the company and, typically, a large variety of terms to govern the stockholders’ relationship with each other and with the company. Sometimes the parties cannot agree (or cannot agree efficiently) on some mix of the valuation and the other terms of the transaction such as other market-based bells and whistles including board seats, liquidation preferences, and down round antidilution protection among others.

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