Season Two: Episode Nine — An overview of convertible notes, including key provisions, mechanisms for conversion, and negotiation strategy.

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

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“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

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

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

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Mentioned in This Episode:

Additional Resources:

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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.