![\"Convertible](\"http:\/\/foundersnetwork.com\/wp-content\/uploads\/2014\/10\/GD_-blog.png\")
<\/p>\n<\/p>\n
Last week, Brian Patterson, Jared Grauer and Jonathan Gleason of\u00a0Gunderson Dettmer<\/a>\u00a0led a\u00a0mentoring\u00a0session for our members\u00a0in response to an engaging post<\/a> about convertible notes on our Online Mentorship Platform. They covered basic terminology, as well as an in depth review of a convertible note cap table. Members gained valuable information and resources from the session and Q&A summed up here:<\/p>\n Convertible notes are\u00a0not as simple as they seem.<\/strong> Note investors won’t\u00a0really know how much\u00a0they own.<\/strong> Convertible notes can cause friction in the process of a Series A close.<\/b> Seeing real numbers\u00a0helps with the complexity.<\/strong> Don’t mix convertible notes and securities.<\/strong> Big thanks to Brian Patterson, Jared Grauer and Jonathan Gleason of\u00a0Gunderson Dettmer for sharing their expertise with our\u00a0members! Their trust and engagement in our community continue to help our members grow through our partnerships, and make for a better, stronger FN.\u00a0You can RSVP<\/a> for our\u00a0next fnMentoring\u00a0with Gunderson Dettmer on Dec. 11 and access the recording from this session on convertible deals\u00a0here<\/a>.<\/p>\n For the opportunity to access FN\u2019s many benefits including an invitation to our next fnMentoring session, and access to past fnMentoring recordings,\u00a0learn about our approval process\u00a0here<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":" Last week, Brian Patterson, Jared Grauer and Jonathan Gleason of\u00a0Gunderson Dettmer\u00a0led a\u00a0mentoring\u00a0session for our members\u00a0in response to an engaging post about convertible notes on our Online Mentorship Platform. They covered … <\/p>\n
\nAs Brian put it, “They are characterized by simplicity on the front end but complexity and uncertainty on the back end – The paperwork for convertibles are generally simple but the way that they convert is often complex and unknown until the time of your equity raise”–a surprising truth\u00a0that founders don’t always know.<\/p>\n
\nNote investors don’t\u00a0exactly know\u00a0what they\u00a0own until you\u00a0have a term sheet. Before investing, they\u00a0should know that because notes are not equity or shares, you won’t be 100% sure of\u00a0how the cap table will convert.<\/p>\n
\nConvertible notes have to be factored in when you are negotiating your term sheet, and all note investors have to sign off on new financing documents–just a couple\u00a0points discussed when Brian\u00a0explained\u00a0how convertible notes can affect the process of closing a fundraising round.<\/p>\n
\nJared went through different scenarios on\u00a0a provided\u00a0convertible note cap table\u00a0spreadsheet<\/a>\u00a0to help members\u00a0understand the conversion calculations in different cases. For instance, Bill Guthrie of Patients with Power<\/a>\u00a0found\u00a0that in one scenario, the\u00a0size of the post-money option pool does\u00a0not affect the percentage of ownership of\u00a0the note holders or the new investors.<\/p>\n
\nConvertible notes and securities have many key differences that were addressed in the presentation. Members were advised against mixing the two, as figuring out the numbers during\u00a0conversion could end up being a nightmare.<\/p>\n