May 2 2016

An Angel Investors View on Convertible Notes in 2016

Will Herman, an angel investor (we each made our very first angel investment together in a company called NetGenesis in Boston in 1994) wrote a great post titled Convertible Notes – An Angel Investor’s View.

In it, Will covers the history of convertible notes and how they’ve gone from simple instruments intended to get a deal done quickly while saving time and money on the legal front to documents that are just as complex as an equity instrument.

Rather than bitch about it, Will explains the terms he now looks for in convertible notes and how he thinks about each one. He covers:

  • Discount
  • Interest
  • Cap
  • Events Prior to Conversion
  • Closing of the Note
  • Pari Passu with Future Notes
  • The Major Investor Clause

Convertible notes have changed a lot since my first angel investment in 1994. Will does a nice job resetting the current reality around them.