Kann jemand erklären, wie Convertible Notes funktionieren und wie man sie auf ein Startup anwendet?
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Omer, the Americans use Convertible Notes to secure the investment, as a kind of loan for the company, which can be converted into series A shares, preferred and issued most often by startups, when both parties decide that the time has come. Europeans use them with seed money, most often.
The idea behind Convertible Notes is to postpone the issue of valuing the purchase of a company at an early stage of its development, as valuing can be inconvenient for both parties to the transaction. This is usually the case at the beginning of the start-up's activity, when it is not certain how much more funds will have to be collected from the market and how many shares in the company will be transferred to subsequent investors. Convertible Notes works a bit like vesting, i.e. the parties (startup and investor) agree that they will not evaluate the startup NOW because they will not agree on its value anyway, but when the startup develops and the value is approaching a jump, then then the parties will sit down and evaluate the value of the series A investor's shares. Valuation postponed in the future gives room for talk about specific amounts, but the investor has already reserved his own place in the Supervisory Board for his first investments in the Supervisory Board, maybe 10% or 20% of shares, but has. In addition, he will receive a margin for his investment contribution, for example 15%, if he wanted to exit the investment, with his capital, from the investment. Then, instead of repaying the loan with interest, the investor receives preferred shares on the terms described in the notarial agreement.
The bonus included in the contract is based on two rules DISCOUNT and CAP. The first gives a bonus in the form of a lower conversion price of notebooks into shares (at a discount from the issue price of series A shares). Usually 20 percent. The CAP is the maximum valuation cap after which a conversion can occur. If the valuation of the startup is higher than the CAP at the time of the issue, you will be able to convert the Convertible Notes into shares at a lower valuation, determined by the CAP.
Although they have only recently been used in Europe, they are a popular and well-received tool. Convertible Notes are more advantageous in the early stage and do not have the same fees as buying shares.
Suppose you, as an investor, want to invest $500,000. PLN. You get a Convertible Note with a 20% discount. and a valuation limit of PLN 5 million and an annual interest rate of 5%. When the series A round takes place after a year, the valuation of the startup will be PLN 10 million. Assuming that the shares are sold at PLN 1 per share in the series A round, you will buy shares at PLN 0.50 per share due to the valuation cap, so you will receive 1 million shares. The conversion discount does not apply because the valuation limit gave a lower share price than the discount. You will also receive additional shares based on 5% interest for 1 year for PLN 500,000 (25,000 shares). You receive 1,025,000 shares for an early investment of PLN 500,000.
Convertible Notes designs provide SAFE incubators from Y Combinator or KISS from 500 Startups and you can find them in the attachment or at ccFOUNDS.com. I can sell them to you if you have trouble downloading them from the internet.
Omer, the Americans use Convertible Notes to secure the investment, as a kind of loan for the company, which can be converted into series A shares, preferred and issued most often by startups, when both parties decide that the time has come. Europeans use them with seed money, most often.
The idea behind Convertible Notes is to postpone the issue of valuing the purchase of a company at an early stage of its development, as valuing can be inconvenient for both parties to the transaction. This is usually the case at the beginning of the start-up's activity, when it is not certain how much more funds will have to be collected from the market and how many shares in the company will be transferred to subsequent investors. Convertible Notes works a bit like vesting, i.e. the parties (startup and investor) agree that they will not evaluate the startup NOW because they will not agree on its value anyway, but when the startup develops and the value is approaching a jump, then then the parties will sit down and evaluate the value of the series A investor's shares. Valuation postponed in the future gives room for talk about specific amounts, but the investor has already reserved his own place in the Supervisory Board for his first investments in the Supervisory Board, maybe 10% or 20% of shares, but has. In addition, he will receive a margin for his investment contribution, for example 15%, if he wanted to exit the investment, with his capital, from the investment. Then, instead of repaying the loan with interest, the investor receives preferred shares on the terms described in the notarial agreement.
The bonus included in the contract is based on two rules DISCOUNT and CAP. The first gives a bonus in the form of a lower conversion price of notebooks into shares (at a discount from the issue price of series A shares). Usually 20 percent. The CAP is the maximum valuation cap after which a conversion can occur. If the valuation of the startup is higher than the CAP at the time of the issue, you will be able to convert the Convertible Notes into shares at a lower valuation, determined by the CAP.
Although they have only recently been used in Europe, they are a popular and well-received tool. Convertible Notes are more advantageous in the early stage and do not have the same fees as buying shares.
Suppose you, as an investor, want to invest $500,000. PLN. You get a Convertible Note with a 20% discount. and a valuation limit of PLN 5 million and an annual interest rate of 5%. When the series A round takes place after a year, the valuation of the startup will be PLN 10 million. Assuming that the shares are sold at PLN 1 per share in the series A round, you will buy shares at PLN 0.50 per share due to the valuation cap, so you will receive 1 million shares. The conversion discount does not apply because the valuation limit gave a lower share price than the discount. You will also receive additional shares based on 5% interest for 1 year for PLN 500,000 (25,000 shares). You receive 1,025,000 shares for an early investment of PLN 500,000.
Convertible Notes designs provide SAFE incubators from Y Combinator or KISS from 500 Startups and you can find them in the attachment or at ccFOUNDS.com. I can sell them to you if you have trouble downloading them from the internet.
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