Negotiating Convertible Note Term Sheets

Startup LAWnchpad is the podcast that educates entrepreneurs about forming, growing and protecting a startup. Startup LAWnchpad is produced by the Entrepreneurial Law Clinic at Fordham University School of Law in New York City.

 

Episode Description:  Elizabeth Ostaszewski (Fordham Law ‘19) and Christie Yeh (Fordham Law ‘19) interview Seth Helfgott (Fordham Law ‘09), Partner at Wilson Sonsini in San Francisco, to discuss convertible notes — the  most common way to raise modest amounts of capital from venture capital firms at the seed stage.

 

Episode Roadmap:

• [:30] Elizabeth Ostaszewski and Christie Yeh introduce themselves and their guest Seth Helfgott and offer an overview of venture capital financing and convertible notes.
• [7:20] What terms should a borrower look for and what details should they focus on when obtaining a convertible note?
• [11:23] Convertible note negotiations and the role of the valuation cap.
• [17:10] Discount rates and their ideal percentages.
• [19:23] How exactly do convertible notes convert? An overview of the three most common mechanisms for conversion.
• [21:39] General terms that are considered non-negotiable by venture capitalists and the provisions that startups need to fight for.
• [27:09] Who controls amendments to convertible notes?
• [28:49] Understanding West Coast vs. East Coast convertible note negotiations and the new SAFE agreement.
• [30:59] Seth’s career advice for both entrepreneurs and lawyers.

 

Tweetables:

• “Companies don’t need to focus too much on building out a financial model at this point — most venture capitalists recognize it’s really just guessing at this early stage.” — Seth Helfgott

 

• “You need to think about the size of the round that you are raising now and the size of the round you expect to raise before these notes convert.” — Seth Helfgott

 

• “Historically East Coast is more investor friendly and West Coast tends to be more company favorable.” —Seth Helfgott

 

• “Value your time — don’t do it for free — but there are plenty of pro-bono opportunities to get involved in.” — Seth Helfgott

 

Mentioned in This Episode:

• Startup LAWnchpad Season 1, Episode 12: Seed Financing
• Y Combinator

 

Additional Resources:

• Fordham’s Entrepreneurial Law Clinic
• Follow us on Twitter @FordhamELC

 

Sponsors:

• Nasdaq Educational Foundation
• Fordham’s Entrepreneurial Law Advisory Council

 

Disclaimer:

The information contained in the Startup LAWnchpad podcast and any materials associated therewith (the “Podcast”) is for educational, informational, and entertainment purposes only. It does not constitute legal advice or tax advice with respect to any particular circumstance. The Podcast is not a complete overview or analysis of the topics presented, and may contain information that varies in different jurisdictions and is subject to revision, interpretation, or nullification after the date o