Structuring Convertible Note Financing: Discount Rates, Valuation Caps, Conversion Triggers
Due Diligence, Determining Priority vs. Other Creditors and Equity Holders
Recording of a 90-minute premium CLE video webinar with Q&A
This CLE course will provide founders and corporate finance counsel with guidance on structuring convertible notes for seed-stage financing. The panel will discuss upfront due diligence, term sheet negotiation, and critical terms, including the discount rate, valuation cap, and triggers for converting debt to equity.
Outline
- Advantages of convertible debt as seed-stage financing
- What to address in the term sheet
- Due diligence before closing
- Conversion triggers
- Issuance of equity
- Sale of company or company assets
- Maturity
- Factors in determining equity value at the conversion
- Discount rate
- Valuation cap
- The interest rate under the note
Benefits
The panel will review these and other key issues:
- How should an investor determine an appropriate amount of seed-stage financing to provide a startup company without an accurate valuation?
- When is the right of conversion to equity exercised?
- What is the typical discount rate, and how is the valuation cap determined at the time of the convertible note transaction?
- What is the priority of the convertible note vis-a-vis other creditors and equity holders of a startup?
Faculty
David Goldenberg
Founding Attorney
VLP Law Group
Mr. Goldenberg helps growth-oriented companies on financing, M&A and general contractual matters (including JVs and... | Read More
Mr. Goldenberg helps growth-oriented companies on financing, M&A and general contractual matters (including JVs and other business transactions) and investors in their equity investments in these companies. He excels at counseling his clients through the complex world of financing, growing and selling their business. Mr. Goldenberg also counsels individual executives on employment matters. He regularly works with company founders, investors, and related parties on preferred stock, common stock, convertible debt, down-round, bridge, warrants, and other types of financings, having completed hundreds of financing transactions in his career. Mr. Goldenberg has also overseen complex licensing transactions, strategic partnerships, helped SAAS companies create terms for their offerings, as well as worked on multiple mergers, ranging in size from $6M to $1.9B. He has authored articles on design law, copyright and the internet and regularly speaks on topics related to startups and financing.
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Matthew Literovich
Partner
Dentons
Mr. Literovich practices in the firm’s Corporate group and has significant experience in the technology, life... | Read More
Mr. Literovich practices in the firm’s Corporate group and has significant experience in the technology, life sciences, and charities spaces. He works extensively with emerging companies and investors as a part of the firm’s Venture Technology and Emerging Growth Companies group. Mr. Literovich advises on incorporations, shareholder matters, reorganizations, equity and debt financings, mergers and acquisitions and other corporate-commercial issues that may arise. His background in corporate strategy not only allows him to grasp a deeper understanding of clients’ businesses, but also gives clients the benefit of his sound judgment and strong negotiation skills to help them achieve their goals.
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Laurence M. Smith
Member
Chiesa Shahinian & Giantomasi
Mr. Smith is the co-chair of the firm's Corporate and Securities Group. He has a broad-based transactional practice... | Read More
Mr. Smith is the co-chair of the firm's Corporate and Securities Group. He has a broad-based transactional practice that includes mergers and acquisitions, private equity transactions on behalf of both funds and issuers of debt and equity instruments, and syndicated, middle-market, asset-based and secondary loan transactions for commercial lenders and institutional investors.Combining his experience in M&A and commercial finance transactions, he represents lenders and investors in the purchase and sale of distressed debt. He is a frequent contributing author to legal journals and business publications, publishing articles in the areas of private equity, secured party transactions and banking law.
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