The email says we would love to partner with you. The attachment explains how much of that partnership we would like to receive if things go well, what we would like back if they do not, and which conversations require our permission. The email is considerably shorter.
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.
Welcome to the Post Money Capital note. Post Money Capital and Ordinary Machines, Inc. are fictional parties. No financing is being offered here. This is an educational negotiation exercise, not legal, tax, or investment advice. The clauses below are intentionally investor-friendly in several places. They are not a recommended form or a claim about universal market terms.
Read the specimen clause by clause, with the founder's asks beside the language, or start with Part I. Six annotated essays follow the same $500,000 through pricing, maturity, conversion, an acquisition, and closing. The original note and the proposed counteroffers are kept separate: none of our comments silently changes the deal. The numbers are reproduced in tested exhibits. A real transaction still needs counsel for valid documents, approvals, securities compliance, tax treatment, and companion agreements.
The specimen
Educational convertible promissory note. Issuer: Ordinary Machines, Inc., an imaginary Delaware corporation. Holder: Post Money Capital, an imaginary investor. Issue date: October 1, 2026. Principal: $500,000. Valuation cap: $5,000,000. Discount: 20%. Interest: 8% simple annually. Maturity: October 1, 2028. Qualified financing threshold: $2,000,000 in new cash. This is a complete specimen for the mechanisms discussed, not an executable closing package. It adapts common structural alternatives visible in the public-domain Series Seed note; the selected economics and annotations are ours.1
Clause 1 / Money and interest
In exchange for $500,000 actually received, the Company promises to repay principal and accrued interest, or convert them as provided below. Interest accrues on unpaid principal only at 8% a year, without compounding. For this specimen, elapsed years use a 30/360 convention: each full month is 30 days and each full year is 360 days, with end-of-month treatment to be specified by counsel in an executable document. The anniversary examples therefore produce $40,000 after one year and $80,000 after two. Accrual ends at payment or the effective conversion date. Interest and principal together are the Conversion Amount.
Clause 2 / The denominator
Company Capitalization means outstanding common shares; preferred shares on an as-converted basis; outstanding options and warrants on an as-exercised basis; and unissued shares reserved in the equity incentive pool, including any increase approved in connection with the financing before conversion. Avoid double-counting shares already included through another category. It excludes this note, all other capital-raising convertibles, and the new shares issued for cash in the triggering financing. A real schedule must address promised but ungranted awards explicitly; the fictional company has none. The Cap Price is $5,000,000 divided by Company Capitalization immediately before the relevant conversion.
The cap's less photogenic half
- What it means
- This phrase puts a financing-driven option-pool top-up into the cap denominator. Divide the fixed $5 million cap by more shares and the cap price falls. A lower price gives the note more shares for the same converting balance.
- Why it helps you
- An explicit definition is better than leaving the capitalization to be invented at closing. A realistic hiring reserve also helps the business; the question is who absorbs its dilution.
- Where it bites
- In our stated pricing model, growing the defined pool by one million shares takes the cap price from $1 to about $0.8333. The one-year note gets 648,000 shares instead of 540,000. The founders still own four million shares.
- Ask for this
- Ask to exclude a pool increase imposed by the next financing from the cap denominator, or negotiate its size and allocation explicitly. Attach the actual fully diluted share schedule, including promised awards, warrants, and every convertible. An exclusion here does not erase the pool's separate dilution.
Exclude the new financing's pool top-up from Company Capitalization for cap pricing. Keep the existing agreed reserve in the schedule and model the top-up separately.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley §2.1 brackets whether reserved shares and a financing-related pool increase enter the denominator. Our specimen deliberately includes them. [1]
Clause 3 / Qualified financing
A Qualified Financing is a bona fide preferred-stock financing receiving at least $2,000,000 of new cash, excluding amounts converted from notes or other convertibles. On its closing while this note remains outstanding, the entire Conversion Amount automatically converts. The price is the lower of the Cap Price and 80% of the cash price per share paid by the new investors. The cap and discount are alternative prices, not successive reductions. Shares issued equal Conversion Amount divided by that lower price; fractional shares are settled in cash at the conversion price.
Lower means better for the buyer
- What it means
- Compute both prices and use whichever buys the note more shares. In the $10 million pre-money example, the cap gives $1 and the discount gives $1.60. The note uses $1. The discount does not reduce that dollar again.
- Why it helps you
- Alternative pricing is bounded and modelable. A qualifying round converts the debt automatically; our holder cannot insist on keeping it outstanding merely because it dislikes the result.
- Where it bites
- The investor benefits from the cap in a strong round and the discount in a weaker one. A cap is not a minimum company valuation or a promise of fixed dilution. Language applying the discount to the cap as well would be a materially worse additional concession.
- Ask for this
- Ask for a higher cap, a smaller discount, or only one pricing benefit. Model each proposal in strong, weak, and delayed rounds. Retain the explicit alternative-price formulation and confirm how new-money pricing treats existing convertibles.
Use the lower of the cap price and 90% of the new-money price, with no stacked discount. Compare a $7 million cap against the current $5 million cap in the same three scenarios.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley §2.1 offers discount pricing and an alternative lower-of cap/discount formula. These proposed cap and discount changes are our bargaining examples. [1]
Clause 4 / What stock arrives
The Holder receives the same preferred series sold to the new cash investors and executes its applicable financing documents. No separate shadow series or adjustment of per-share liquidation preference is promised. Thus, if that series carries a $2-per-share liquidation preference and this note converts at $1, its holder receives twice as many preferred shares per conversion dollar as a new investor. The actual charter defines all preferences, participation, conversion rights, and seniority. This clause intentionally leaves the economic consequence of same-series treatment exposed.
Same stock, larger first claim
- What it means
- The discounted shares receive the future cash investors' stock rights. If that stock has a $2 preference per share, our 540,000 shares bought through $540,000 of conversion dollars carry $1.08 million of stated preference. That amount is not a guaranteed exit payment.
- Why it helps you
- Joining one series can simplify documentation and avoid another class with separate consent machinery. The early investor has also genuinely taken risk that the new cash investors did not take.
- Where it bites
- The ownership discount can accidentally become a larger preferred claim ahead of common as well. The actual charter, available proceeds, seniority, and participation rules determine how painful that becomes.
- Ask for this
- Ask for properly defined shadow preferred with price-linked rights tied to the note's conversion price. In this example, $1 per share gives $540,000 of preference without removing the 540,000 shares. Review anti-dilution price and dividend calculations too; fixing only one line can leave another mismatch.
Permit a shadow series that votes with the cash-investor series but bases preference, price-based anti-dilution, and relevant dividend amounts on the actual conversion price. Reconcile it to the charter.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley §2.1 includes an optional shadow-series provision. Its valuation-cap article also discusses adjusted preferred and other solutions. Our same-series example intentionally omits that protection. [1][3]
Clause 5 / A smaller round
If a preferred financing raises less than the Qualified Financing threshold, the Majority Holders may elect in writing before closing to treat it as a Qualified Financing under clauses 2–4. Without that election, the note remains outstanding and interest continues. There is no automatic reset to the new round's valuation and no automatic cancellation of the maturity date.
A funding announcement need not retire the loan
- What it means
- A preferred round below $2 million of new cash does not automatically clear this note. Majority Holders choose whether to treat it as qualifying. Converted notes do not count as new cash toward the threshold.
- Why it helps you
- A genuine funding threshold protects against forcing early investors into equity through a token round that leaves the company underfunded. Continuing the note may also be preferable to converting at a genuinely bad small-round price.
- Where it bites
- You can raise useful cash, celebrate, and still owe the old debt on the old maturity schedule. The next lead may want every note converted while the existing majority can decline.
- Ask for this
- Ask for a threshold that fits the actual financing plan, automatic conversion in a defined bona fide round, or a limited company election. Protect against a sham insider financing without making a realistic outside round too small to count.
Reduce the new-cash threshold to $1 million for a bona fide preferred financing led by an independent investor. Keep converted balances outside that cash test.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley §§2.1–2.2 separate qualifying cash from converted instruments and offer holder elections for smaller rounds. Our $2 million threshold and this proposed alternative are invented economics. [1]
Clause 6 / Maturity and prepayment
After maturity, Majority Holders may request payment of principal and accrued interest or elect conversion of the Conversion Amount into common shares at the Cap Price, using Company Capitalization at that time. A request must specify the chosen treatment; it cannot demand both. No automatic extension is promised. Payment is due ten business days after a written repayment request. Before or after maturity, the Company may not prepay without Majority Holder consent. An extension may be agreed under clause 11.
The deadline brings a creditor to the meeting
- What it means
- After October 1, 2028, the majority can demand the accrued balance or elect common conversion. With the unchanged anniversary assumptions, that balance is $580,000. Maturity itself does not automatically extend the note or immediately require payment without a request.
- Why it helps you
- A known date prompts a real financing or restructuring discussion. Common conversion is an available negotiated alternative; it does not create an undefined preferred class at the last minute.
- Where it bites
- If the company has $150,000 of cash, a $580,000 request creates a liquidity problem, not a cash source. The prospect of enforcement gives the majority leverage over an extension when the company has fewer alternatives.
- Ask for this
- Ask for longer maturity, a specified extension process, or automatic conversion on fully stated terms instead of a cash demand. Model no next round. Agree stock class, conversion price, required approvals, and legal limits before treating any alternative as solved.
Use thirty-six-month maturity and a pre-agreed extension process with a workable notice period. If we instead choose automatic conversion, settle the complete conversion terms now.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley's opening repayment language and §2.3 expose repayment and maturity-conversion choices. The ten-business-day demand period and suggested extension structure are ours. [1]
Repayment requires permission
- What it means
- Even if you find cheaper money or become cash-generative, you cannot unilaterally retire this note. The holder has bought potential equity upside as well as a claim to repayment.
- Why it helps you
- Preserving that upside can persuade an investor to fund a risky company. A carefully priced restriction may be part of the bargain that makes the initial check available.
- Where it bites
- You may be able to afford repayment but unable to obtain consent, especially just before a valuable round. Our restriction continues after maturity, making it broader than a restriction limited to the pre-maturity period.
- Ask for this
- Ask for a defined repayment window, permitted refinancing, a consent-response deadline, or a specifically priced buyout. A response deadline alone is not deemed consent; say whether silence has a consequence.
Permit repayment after maturity on thirty days' notice unless holders elect the specified conversion within that period. Have counsel coordinate that election with the separate demand right.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley §1.3 restricts prepayment prior to maturity. Our specimen expressly extends the restriction beyond maturity; this is not verbatim Cooley language. [1]
Clause 7 / Sale before conversion
A Change of Control means a transfer of more than 50% of voting control, a merger after which prior stockholders no longer hold majority voting control, or a sale of substantially all assets. A bona fide capital-raising financing is excluded. The Company gives ten business days' advance notice when practicable. Before closing, the Holder elects either cash equal to twice original principal plus accrued interest, or conversion into common shares of the Conversion Amount at the Cap Price calculated immediately before the transaction. These alternatives are not cumulative. The latter participates only in the consideration attributable to those common shares under the transaction documents.
For a cash election, the contractual claim is payable ahead of distributions to common holders, subject to prior-ranking obligations, applicable law, and available proceeds. Notes of this series rank equally with one another. The two-times premium applies to principal, not to interest. If legal priorities or inadequate proceeds prevent full payment, this clause does not manufacture the missing money. Transaction structure, escrow, earnouts, withholdings, and noncash consideration require specific documentation; the essays' clean-cash sale assumes none.
The acquisition has an early-withdrawal fee
- What it means
- Before conversion, the holder chooses one sale outcome. At the first anniversary, the cash claim is $1 million of doubled principal plus $40,000 interest: $1.04 million. The alternative is common conversion and its attributable consideration, not both payments.
- Why it helps you
- An agreed election can avoid inventing the sale treatment while a buyer waits. A sale premium can compensate an early investor whose hoped-for long equity ride ends early.
- Where it bites
- A modest sale can pay the investor well and leave common little or nothing. The cash claim is subject to prior obligations, law, and available proceeds. It does not conjure cash from buyer stock, an earnout, or an empty bank account.
- Ask for this
- Ask to remove or reduce the premium and specify whether it applies to principal or the accrued balance. Negotiate the exact trigger, notice, election deadline, escrow, earnout, and noncash allocation. Model both investor choices before agreeing the acquisition economics.
Offer principal plus accrued interest or the common-conversion outcome, with no additional premium and no double recovery. Document how each election shares contingent and noncash consideration.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley §2.4 offers a repayment premium and an optional common-conversion alternative. Our 100% principal premium and selected election mechanics are deliberately investor-friendly example choices. [1]
Clause 8 / Insolvency and ranking
This note is unsecured, with no lien and no personal guarantee from a founder. It is contractually subordinated to bona fide bank and equipment debt, whether already outstanding or later incurred, unless that debt expressly ranks equally or junior. An ordinary winding-up claim is principal plus accrued interest, without the sale premium. Statutory priorities, insolvency rules, and any separate subordination agreement govern actual distributions. The specimen makes no promise that a creditor will recover its contractual balance.
Whose assets are on the menu?
- What it means
- The borrower is the company. This specimen gives the noteholder no pledged collateral or founder guarantee and subordinates the note to specified bank and equipment debt. Recovery still follows applicable priorities and actual assets.
- Why it helps you
- The absence of a personal guarantee and lien is a material founder protection. Permitting appropriate senior business borrowing can also keep future equipment or bank financing practical.
- Where it bites
- A request for a guarantee, an IP lien, or a founder indemnity elsewhere can change the exposure despite this paragraph. No-guarantee language does not settle separate liabilities outside this note; have counsel review them.
- Ask for this
- Preserve no founder guarantee and no collateral grant across the whole closing package. If someone requests personal exposure, have your own lawyer identify its scope rather than accepting it as another standard signature page. Check how future senior borrowing is defined.
The obligation stays with the company; no founder guarantee or security interest is added in a side letter. Identify permitted senior debt expressly and confirm the ranking across documents.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley §5.15 addresses senior indebtedness. Our equipment-debt wording and explicit no-guarantee statement are part of this original specimen, not a claim that every Cooley-generated package has identical terms. [1]
Clause 9 / Default
An unpaid amount demanded under clause 6 constitutes default after its ten-business-day payment period. A material breach of another obligation becomes a default only after written notice and thirty days to cure, where capable of cure. An insolvency proceeding constitutes default subject to applicable law; an involuntary filing dismissed within sixty days is excluded. Majority Holders may declare unpaid principal and interest immediately due after an uncured default. No additional default interest or automatic sale premium applies. Enforcement remains subject to legal restrictions, including any insolvency stay.
The missing spreadsheet can acquire a lawyer
- What it means
- A material reporting or other nonpayment breach can eventually support acceleration. Our specimen first requires notice and a cure opportunity where the problem is curable. The maturity-payment default uses a different ten-business-day period.
- Why it helps you
- Materiality, notice, and a workable cure period stop every minor administrative miss from immediately becoming a repayment demand. There is no added default interest or automatic sale premium in this specimen.
- Where it bites
- Adding discretionary defaults for anything the holder considers adverse can turn an operating disagreement into leverage over the whole balance. A cure right is useless if the company cannot perform the promised reporting or the cure demanded.
- Ask for this
- Ask for objective triggers, materiality, notice, realistic cure periods, and majority action for acceleration. Align reporting deadlines with your finance capacity. Reject a sale premium or punitive rate sneaking into the default section without a separate economic negotiation.
Retain written notice and a thirty-day cure for curable material breaches of obligations other than payment. No default based merely on missing a forecast; no added penalty rate or sale premium.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley §4 supplies default and acceleration mechanics. Our material-breach provision for obligations other than payment and thirty-day cure are added example protections; they are not its published default language. [1]
Clause 10 / Later better paper
While this note remains outstanding, the Company must notify the Holder within ten business days of issuing a new capital-raising convertible with more favorable cap, discount, interest, or maturity economics, and supply its terms subject to appropriate confidentiality. The Holder has twenty business days to elect the whole economic package, preserving its own principal and accrued interest. It cannot cherry-pick one benefit while rejecting the package's economic burdens. Ordinary bank or equipment borrowing, employee equity awards, and acquisition consideration are excluded. Whether a later instrument is comparable, and how replacement works, must be resolved in the amendment rather than guessed from a headline.
Your emergency discount has an audience
- 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]
Clause 11 / Who can change it
The Company and holders of more than 50% of outstanding principal in this note series may amend or waive terms, binding the series equally. The Company maintains a current holder ledger and sends each holder the executed amendment. Reducing a holder's principal or already-accrued interest, raising its cap, or reducing its discount additionally requires that holder's consent. Maturity extensions are not individually protected. Unequal treatment requires each adversely affected holder's consent. There is initially one $500,000 note, so the fictional investor controls the holder vote but cannot amend the contract without the Company's agreement.
The democratic meeting of one
- What it means
- Count principal, not heads. Post Money Capital initially holds the entire $500,000 series, so it controls the holder vote. It still needs the company's agreement. Later minority holders can be bound by a qualifying collective amendment.
- Why it helps you
- Collective amendment lets the company solve an extension without chasing every signature. Company consent and equal treatment are real protections; individual consent is reserved for the specified adverse economic changes.
- Where it bites
- A concentration hidden behind several investor names can dominate the vote. Blanket unanimity can create the opposite problem: a tiny holder blocking a sensible rescue. Side arrangements can undermine an apparently equal amendment.
- Ask for this
- Request the holder ledger, the series boundary, and the actual protected terms. Preserve company consent and notice. Use higher thresholds only for identified decisions and prohibit adverse unequal treatment without affected-holder consent.
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]
Clause 12 / Information and expenses
While the note is outstanding, the Company supplies quarterly unaudited financial statements within forty-five days and annual unaudited statements within ninety days, plus its annual budget when approved. Reasonable follow-up requests are subject to confidentiality, privilege, privacy, and protections for competitively sensitive information. No board seat, observer seat, veto over operations, or pro-rata investment right is created by this clause. Any such rights need a separately negotiated agreement.
The Company reimburses actual, invoiced investor closing counsel fees up to a single $10,000 aggregate cap for the entire note series. This reimbursement does not increase principal. Each side bears other negotiating expenses. Enforcement costs are recoverable only to the extent permitted by law and any applicable court order. Paying the full closing fee from the proceeds leaves $490,000 for operations while the note still starts at $500,000.
A reporting right is still work
- 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]
You are financing the invoice too
- What it means
- The headline principal is $500,000. If this fee is paid in full from the wire, $490,000 remains before the company's own counsel and other costs. The debt still starts at $500,000; reimbursement does not increase it.
- Why it helps you
- One aggregate cap, actual invoices, and a closing-only scope are much better than an open-ended obligation for every holder's lawyer. A negotiated reimbursement can help get a deal closed.
- Where it bites
- You pay for some of the drafting of rights being exercised against your future choices. A cap per investor, uncapped enforcement expense, or abandoned-deal bill can worsen the bargain. Those are not all included in our $490,000 illustration.
- Ask for this
- Ask each side to bear its own costs, or reduce the cap and keep it aggregate, reasonable, invoiced, and payable only on a funded closing. Allocate abandoned-deal costs explicitly. Request a funds-flow statement before budgeting runway.
Each side pays its own counsel. If reimbursement is required, cap actual closing fees at $5,000 for the whole series, payable only when funded; no repeated cap for later closings.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley §5.11 makes each side bear its own negotiation and closing expenses. Our $10,000 investor reimbursement is a deliberate departure, not a fee demanded by Cooley's public note. [1]
Clause 13 / Transfers and closing representations
A transfer requires compliance with applicable securities laws, registration in the Company's holder ledger, and the transferee's written acceptance of this note and confidentiality duties. A transfer to a direct competitor requires Company consent, including where the proposed transferee is an affiliate. No exemption from securities law is implied. The fictional Company represents that it is duly organized and has obtained necessary corporate authority; the fictional Holder represents sophistication, accredited-investor status, investment for its own account, and ability to bear complete loss. In a real closing, counsel must verify the representations, available exemptions, required disclosures and filings, rather than copy these fictional assertions.
Your investor's replacement is not a minor detail
- 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]
Clause 14 / Administration
Delaware law governs, subject to mandatory applicable law. Notices use the parties' designated written contact details and require confirmed receipt; none are supplied in this non-executable specimen. Amendments and waivers must be written. The note, its signed schedules, and any expressly identified side letters would comprise the agreement; a fundraising email does not add rights. Electronic counterparts would be permitted in an executable version. If the principal is not funded within five business days of an agreed closing, the unfunded note lapses. There are no real parties, addresses, signatures, or payment instructions here.
The email is not an amendment
- 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]
Before signing anything resembling this
A short primer can explain why a convertible loan postpones equity pricing without erasing its economic terms.2 It cannot choose your capitalization definition, validate an exemption, or negotiate a sale premium. Those are the work. The following six parts examine this particular specimen, including alternatives a founder could propose. They do not claim that every investor asks for these terms.
A SAFE is a different instrument. YC's standard materials do not add this note's interest accrual or maturity clock.4 “Our friend used a SAFE” therefore does not answer what happens to the debt on October 1, 2028.
Read the ledger before the relationship paragraph. We have devoted considerable effort to making that paragraph pleasant.
Interest gets shares too
Keep interest simple; reduce the rate to 5%; stop accrual at the effective conversion date. Show us the revised share count at twelve and twenty-four months.
Commercial request, not execution-ready legal language. It is not an agreed change to the specimen.Source boundary. Cooley's opening note language offers simple or compounded interest. Our 8% rate, 30/360 convention, and effective-date treatment are selected example terms, not a quotation of its form. [1]