Angel Capital Association – New Model Convertible Note Agreement Available for Free Download

Insights Angel Capital Association – New Model Convertible Note Agreement Available for Free Download Dror Futter · June 11, 2024

The Angel Capital Association recently released its new Model Convertible Note and Term Sheet which discusses essential aspects of convertible note financing. Rimon Partner Dror Futter is a contributing author.

The Angel Capital Association New Model Convertible Note and Term Sheet is now available for download on the ACA website. https://lnkd.in/geEJCz9U

➡ The goal is to do for Convertible Notes what the NVCA did for priced equity and Y-Combinator did for the SAFEs – create a common starting point for drafting. Even if you make material modifications, just having the ability to redline against a common template will generate significant savings in cost and time.
➡ The model Convertible Note does not alter the key economic terms of most convertible note financings.
➡ Like the NVCA forms, the model Convertible Note contains drafting options when there is more than one common variation in the market.
➡ Also like the NVCA forms, the model Convertible Note will be updated to reflect changes in market and law.
➡ The model note does not require a Note Purchase Agreement.
➡ The model document includes several provisions more typically found in side letters required by larger investors and major angel groups. The model document will provide the benefit of these provisions to the entire investor base and eliminate potential conflicts between the “haves” and “have nots.”
➡ More specifically, these provisions include:

✳ Expanded Representations and Warranties
✳ Participation Rights in Future Financings
✳ Select Information Rights
✳ Most Favored Nations Provision (optional)
✳ Observer/Board Seat (optional)
✳ Protective Provisions that require the approval of a majority of the noteholders with respect to select corporate acts
✳ Compliance with the Corporate Transparency Act

If broadly adopted, I think this model document will contribute to lower transaction costs and quicker closings for early-stage venture finance.

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon, P.C. or its affiliates. Prior results referred to in these materials do not guarantee or suggest a similar result in other matters.

About the Author:

Dror Futter focuses his practice on startup companies and their investors and has worked with a wide range of technology companies. His fifteen years’ experience as in-house counsel includes positions with Vidyo, Inc., a venture-backed videoconferencing company, and New Venture Partners, a venture fund focused on corporate spinouts. Prior to that, Mr. Futter was Counsel to the CIO of Lucent Technologies, as well as supporting parts of its sourcing organization. Read more here.