Are convertible notes typically issued along with stock in Series A?
Posted by David S. Rose on August 25th, 2013
No, because they are, by definition, two completely different things.
“Series A” is a shorthand way of referring to what is typically the first institutional round of investment in a company, made in the form of purchasing Convertible Preferred Stock. A “Convertible Note” is a loan to the company, in which the principal (and often the interest earned to date) converts into Convertible Preferred Stock, typically at the time of the Series A institutional investment round.
So under most scenarios it would not make sense to do both at the same time. The Convertible Preferred Stock of the Series A functions in many ways like a note, having priority over Common Stock in the liquidation waterfall.
The question therefore would be “what purpose are you trying to achieve?” by doing both at the same time. It’s likely that any intended goal of this type of strategy would be better served either by modifying the terms of the Series A itself, or by issuing warrants along with the Series A.
*original post can be found on Quora @ http://www.quora.com/David-S-Rose/answers *
Written by David S. Rose
David S. Rose
Founder and CEO,Gust
David has been described as "the Father of Angel Investing in New York" by Crain's New York Business, & a "world conquering entrepreneur" by BusinessWeek. He is a serial entrepreneur & Inc 500 CEO who chairs New York Angels, one of the most active angel investment groups. David is also CEO of Gust.
Gust is the world’s largest platform and community
for entrepreneurs and early stage investors.
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