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SeedInvest adopts 500 Startups KISS Convertible Note


SeedInvest is announcing that we are waiving our legal review fees for any startup using the 500 Startups KISS Convertible Note in a debt round, or using the Series Seed documents in a priced (equity) round. Learn more about these two offering document options below.
KISS Convertible Note

The KISS Convertible Note documents are open-source and were authored by Greg Raiten, former General Counsel of 500 Startups (now GC of FirstMark Capital), in order to “SAVE founders & investors TIME and MONEY…  to RAISE MONEY quickly & easily, hopefully WITHOUT GETTING SCREWED.”  After an extensive review of the standard form documents in use in the early-stage investing market, we feel that these documents are the most mechanically sound and present the most balanced terms for both investors and entrepreneurs.

Using standard documentation allows us to get more companies through our diligence process faster, cheaper and with greater comfort for investors. There are several reasons why we selected the 500 Startups KISS documents:

  1. Pro-Rata Rights:  Investors get pro-rata rights in the conversion deal and in transactions thereafter.  Many notes fail to guarantee this or miss the right to put extra money into the conversion transaction.
  2. Information Rights:  Investors get basic Information Rights, including quarterly and annual financials.  Not getting regular investor updates is among the top complaints by angel investors.
  3. Protection on Change of Control:  On change of control you get the greater of a 2x multiple or a multiple based on the valuation cap, providing good upside for the “acqui-hire” scenario.  Without this protection, if the company is sold before conversion and the investor simply gets their money back + interest.
  4. Protection upon Maturity – Demand Notes:  The notes can only be repaid upon demand by the investor, meaning the company can never simply pay interest/principal back and retire the note without investor consent.  This is a very important protection that is often over-looked.
  5. Most Favored Nation:  Protection against the startup giving a later investor better terms, particularly on valuation.
  6. Mechanically Sound:  We’ve seen many notes with serious mechanical flaws, including some that invalidate the valuation cap.  The 500 KISS is mechanically sound so all parties can be confident that the document reflects the anticipated terms.

An angel investor’s worst nightmare is not losing money because of a failed startup, but rather not cashing in when their portfolio company is successful.  The above provisions of the 500 KISS help protect investors from not capitalizing on their best bets.

For these reasons, we are waiving our legal review fees for those companies using these documents (without alteration), hopefully saving startups money on our legal fees as well as their own.
Series Seed

The Series Seed documents are also open-source and were authored by Fenwick & West attorney Ted Wang with input from Andreessen Horowitz, First Round Capital, True Ventures, Charles River Ventures, Ron Conway, Mike Maples, among other angel investors. Andreessen notes that these new templates are necessary “[b]ecause these open-source documents are transparent and standard, any angel or VC or entrepreneur can pick them up without having anything complicated or mysterious happen. They’ll cost [everyone] far less in legal fees, too.”

The Series Seed documents, much like the KISS Convertible Notes, are intended to make financing events fast, efficient, and fair. For those reasons, we are also waiving legal fees for those companies utilizing the Series Seed documents, without alteration, for priced rounds.

*The foregoing is not legal advice and no attorney-client relationship is created hereby.  You are encouraged to review the terms of the KISS or Series Seed documents with your own lawyer before using them and to seek the advice of a licensed attorney in the appropriate jurisdiction before taking any action that may affect your rights. We do not assume any responsibility for any consequence of using KISS or Series Seed documents.

Kiran Lingam, General Counsel, SeedInvest


This post was written by James Han on September 9, 2016

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