The investor says the document is standard. The founder says the lawyer has comments. Both parties have announced that they would prefer somebody else to appear responsible for the negotiation.
The shaded passages are from our fictional note, not verbatim Cooley clauses. Comments explain the trade, suggest a counterproposal, and translate our imaginary investor’s incentives. Structural references: Cooley’s CC0 Series Seed form; the tougher selected economics and fictional commentary are ours. An ask is not an agreed change or a guarantee you will get it.
The earlier parts priced the check, shares, clock, stock, and sale. Now read the machinery that can change the deal or keep you working for it. The annotations give commercial requests to take to counsel, not legal language to paste into a signed note.
A request can be refused. Not asking saves the investor the trouble.
Ask what majority means today
Count principal in the specified series. At our first closing, Post Money Capital holds all $500,000. It controls the holder vote, but still needs company consent to amend.
A future $600,000 holder in a $1 million series would have the majority despite the other holders' headcount. Conversely, requiring everybody's signature for every adjustment can hand a very small holder a rescue-financing veto.
Select the decisions needing individual protection and keep the ledger current. A unanimous requirement is not a substitute for deciding what deserves one.
Most favored is a moving attachment
Your emergency discount has an audience
It cannot cherry-pick one benefit while rejecting the package's economic burdens.
Read the full clause and its qualifications ↗
- What it means
- The holder can elect a later convertible's better economic package, preserving its original principal and accrued interest. Our version makes it take the package's burdens too and sets notice and election deadlines.
- Why it helps you
- An early investor can accept today's terms knowing it will hear about later improvements. Whole-package election and excluded ordinary borrowing keep the right from becoming a free selection of every financing's best sentence.
- Where it bites
- A lower cap needed for a rescue round can improve earlier notes as well, increasing the rescue's total dilution. Comparing a note to a SAFE can require amendments; the instruments do not share all their mechanics.
- Ask for this
- Ask for a sunset, narrow covered economics, defined exclusions, timely election, and whole-package treatment. State how different instruments are compared. Price a new bridge with the old holders' possible elections included.
Limit the MFN to specified comparable convertibles issued within twelve months, require a timely whole-package election, and exclude ordinary bank and equipment debt. Document any cross-instrument replacement expressly.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley's optional §1.4 replaces the note with substantially identical later debt, excluding principal and accrued interest. Our covered economics, deadlines, and proposed sunset differ from that form. [1]
A better rescue-bridge offer can ripple into old paper. Model possible MFN elections before claiming the bridge has limited dilution.
Our specimen requires a whole economic package and preserves the old principal and accrued interest. A right to take only the lower cap while rejecting every related burden would be more aggressive. Ask which bargain the actual language creates.
Different instruments need special attention. A SAFE does not acquire this note's interest and maturity merely because the agreement calls it a convertible.4
Information is not a board seat
A reporting right is still work
Reasonable follow-up requests are subject to confidentiality, privilege, privacy, and protections for competitively sensitive information.
Read the full clause and its qualifications ↗
- What it means
- Quarterly financials, annual statements, and an approved budget must be supplied while the note exists. Follow-up access has boundaries. This clause gives no board seat, observer seat, operational veto, or pro-rata right.
- Why it helps you
- An informed investor can notice trouble early and help with a financing. The express confidentiality and sensitivity limits preserve room to protect people, privileged advice, and commercial information.
- Where it bites
- An unlimited request right can consume the company's scarce time or expose sensitive data. A separate observer or side-letter agreement can add access that the note itself does not grant.
- Ask for this
- Ask for reports you can actually produce, limited follow-ups, meaningful confidentiality, appropriate small-holder thresholds, and termination when the note converts. Review side letters separately and define how a later competitive conflict affects access.
Provide quarterly unaudited accounts on realistic deadlines, preserve privilege and competitive exclusions, and end these note-level reporting duties on conversion. Negotiate any observer right separately.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley's Exhibit A includes optional information rights for maturity preferred stock. Our reporting covenant applies while the note is outstanding and is an original extension, not the same provision. [1]
Your investor's replacement is not a minor detail
A transfer to a direct competitor requires Company consent, including where the proposed transferee is an affiliate.
Read the full clause and its qualifications ↗
- What it means
- The note may move, but a direct-competitor transfer needs company consent even if dressed as an affiliate transfer. The new holder must accept the note and confidentiality duties and be recorded in the ledger.
- Why it helps you
- The investor has some liquidity and internal restructuring flexibility without a universal ban on transfers. The competitor exception and written assumption protect the company when the holder changes.
- Where it bites
- A broad affiliate carve-out in another document can reopen the route you thought was closed. A holder can also become a competitor after closing without transferring anything; this sentence alone does not resolve that problem.
- Ask for this
- Ask for notice, written assumption, securities-law compliance, and consistent competitor restrictions across side letters. Define competitors sensibly and address information access if an existing holder's competitive position changes.
No affiliate exception overrides competitor consent. Require notice and written assumption for permitted transfers, and specify information safeguards for later competitive conflicts.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley §§3.2.4 and 5.3 address securities-law restrictions and registered transfers. The explicit competitor-consent protection is our addition. [1]
Quarterly financials and budgets give visibility. Observer rights, board seats, and operating vetoes belong to separate governance negotiations. None is granted by this specimen.
Read information and transfer rights together. A confidentiality promise helps, but a future competitor holding the paper creates another problem. The competitor-consent sentence below includes affiliates; make sure another document does not quietly remove that limit.
Our comments distinguish the safeguards already present from ones you still need to request. There is no benefit in redlining a protection out because you thought it was a trap.
Pro rata is not hidden in the check
The note grants no participation right. If one is requested, price it as a separate bargain: trigger, percentage, holding threshold, exceptions, election deadline, and termination.
A right measured from discounted shares can reserve a different allocation from one based on dollars invested. Super-pro-rata rights can crowd a future lead's allocation further. Show the next-round effect before treating the right as a ceremonial invitation.
The whole signed package is the package.
A redline with a reason beside it
Prioritize what can stop the company operating, then what changes ownership or sale distributions, then administration. For this specimen, that means addressing maturity cash pressure, conversion pricing and pool treatment, same-series preference, the sale premium, and avoidable expense.
Attach the actual models. This definition adds these shares in this case is a better negotiation than this feels unfriendly. The investor can disagree about price without pretending the calculation is unknowable.
Trade consciously. If you accept the current cap in exchange for a workable maturity outcome, record both. A pleasant conversation is not the concession.
The final closing check
The email is not an amendment
The note, its signed schedules, and any expressly identified side letters would comprise the agreement; a fundraising email does not add rights.
Read the full clause and its qualifications ↗
- What it means
- Read the signed package, not the investor's reassuring summary. Our specimen requires written amendments and confirmed notice; an unfunded note lapses after five business days from the agreed closing.
- Why it helps you
- Written changes and a complete attachment list reduce arguments about what was promised. The funding deadline prevents this specimen from remaining effective indefinitely without its principal arriving.
- Where it bites
- A supposed concession mentioned only in an email may never enter the contract. A founder can also sign inaccurate authority or investor-qualification representations by treating the form as a truth generator.
- Ask for this
- Ask counsel to reconcile the final clean draft, redline, schedules, side letters, model, approvals, exemptions, disclosures, and funds flow. Have the appropriate party verify each representation. Identify the written notice addresses and actual receipt mechanics.
List every incorporated agreement, put all negotiated concessions into the execution documents, and retain a funded-closing deadline. Confirm corporate and securities-law work before signing, not after the congratulatory post.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley §§5.10, 5.12–5.13 address notice, funding lapse, and entire agreement. Its lapse uses five calendar days; our specimen uses five business days and expressly identifies schedules and side letters. [1]
Reconcile the clean execution draft, redline, schedules, side letters, capitalization model, holder ledger, and funds flow. Confirm corporate approvals, authorized issuance, representations, securities work, and tax issues with appropriate advisers.
Our example is educational and non-executable. Neither it nor a public form supplies transaction-specific clearance. Capital has value, early risk deserves compensation, and reading the bargain is compatible with respecting the person across the table.
The wire can arrive now. The attachment has finally been read.
The democratic meeting of one
Read the full clause and its qualifications ↗
Keep company consent and the majority process for ordinary amendments; identify core economics requiring affected-holder consent. Circulate the signed amendment and disclose any unequal side arrangement.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley §5.5 provides company-and-majority amendment mechanics. Our protected economics, equal-treatment rule, and ledger-delivery duties add selected safeguards. [1]