Convertible Note Purchase Agreement

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What is it?

A Convertible Note Purchase Agreement is a document used for creating convertible notes, a type of security that can be issued by startups when raising seed capital.

Why do you need it?

Convertible notes are a means of financing used by startups when raising seed capital. In convertible note financing, the seed investor provides the investment to the startup that can be converted into equity (shares in the startup) upon a future event. The promise to convert the investment into equity is contained in a document called a Convertible Note Certificate and in the Convertible Note Purchase Agreement.

A Convertible Note Purchase Agreement is required to set out the terms of agreement to convert the loan into equity.

Key clauses to watch for:

When drafting a Convertible Note Purchase Agreement, it is important to focus on a number of key clauses, in particular:

  • Details about your company;
  • Amount of finance being raised by the company in this transaction;
  • Total value of the convertible notes issued;
  • Interest payments owed to the investor;
  • Maturity date of the investment; and
  • Discount on the price per ordinary shares and preference shares when the investment is converted into equity.

Convertible Note Purchase Agreement Document

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