Convertible note template (seed, founder-annotated)

## NOT LEGAL ADVICE This template is a starting point, not a finished document. Have a startup attorney review before signing. Cooley GO and ACA ship free generators ([Cooley GO Series Seed Notes](https://www.cooleygo.com/documents/series-seed-notes-financing-package/), [ACA Model Note](https://angelcapitalassociation.org/model-convertible-note/)) that produce execution-ready paperwork. Use one of those for the actual closing. Use this annotated version to understand what you're signing. --- CONVERTIBLE PROMISSORY NOTE Company: {{COMPANY_LEGAL_NAME}} State of incorporation: {{STATE_OF_INCORPORATION}} Note date: {{ISSUE_DATE}} Principal amount: ${{PRINCIPAL_AMOUNT}} // Founder note: total cash this investor is wiring. If you're stacking // multiple notes into one round, each investor signs their own note with // identical terms except principal and date. Investor: {{INVESTOR_LEGAL_NAME}} Investor address: {{INVESTOR_ADDRESS}} 1. PROMISE TO PAY {{COMPANY_LEGAL_NAME}} ("Company") promises to pay {{INVESTOR_LEGAL_NAME}} ("Investor") the Principal Amount of ${{PRINCIPAL_AMOUNT}}, plus accrued interest, on the earlier of: (a) the Maturity Date, (b) automatic conversion on a Qualified Financing, or (c) optional conversion or repayment on a Liquidity Event. 2. INTEREST Interest accrues at {{INTEREST_RATE}}% per annum, simple interest, computed on the basis of a 365-day year. // Founder note: 7% is the 2025 median per // [Carta State of Pre-Seed Q1 2025](https://carta.com/data/state-of-pre-seed-q1-2025/). // Most seed notes sit at 5-8%. Interest accrues but is rarely paid in // cash, it converts into equity alongside principal. The higher the rate, // the more dilution you eat at conversion. 3. MATURITY DATE Maturity Date: {{MATURITY_DATE}}, which is {{MATURITY_MONTHS}} months from the Issue Date. // Founder note: 18-24 months is standard. Set this to give yourself // runway to a priced round PLUS a buffer. If you hit maturity without a // qualifying financing, the note is technically due, principal plus // accrued interest, in cash. In practice investors extend or convert at // a default cap, but you're negotiating from weakness. Pick a date with // honest runway math, not optimism. 4. QUALIFIED FINANCING (AUTOMATIC CONVERSION) "Qualified Financing" means the Company's next sale of preferred stock with gross proceeds of at least ${{QUALIFIED_FINANCING_THRESHOLD}} (excluding amounts converted from this Note). On the closing of a Qualified Financing, the outstanding Principal and accrued Interest automatically convert into preferred stock at the lower of: (a) the price per share of the Qualified Financing multiplied by (1 - {{DISCOUNT_RATE}}%), the "Discount Price"; or (b) the price per share implied by a pre-money (or post-money, see §11) valuation of ${{VALUATION_CAP}}, the "Cap Price". // Founder note on threshold: set the trigger high enough that a small // bridge doesn't accidentally trigger conversion, low enough that your // real Series A does. $1M-$2M is typical for a seed-stage note. // Cooley GO flags this exact tradeoff: too high and notes may not convert, // too low and you convert on a small priced round // ([Cooley GO FAQ](https://www.cooleygo.com/frequently-asked-questions-convertible-debt/)). // Founder note on discount: 20% is the seed default. 10% is investor-soft, // 25-30% is investor-hard. The discount is the investor's reward for taking // pre-priced risk. // Founder note on cap: 2024 medians were $11M pre-seed and $28M post-seed // per [Wilson Sonsini Q1 2025 Entrepreneurs Report](https://ecvc.wsgr.com/a/web/vgnKwoeAkUKT6MTc96jYem/entrepreneurs-report-q1-2025.pdf). // The cap sets the ceiling on the conversion price, the lower the cap, the // more shares the investor gets per dollar. 5. NON-QUALIFIED FINANCING If the Company closes a preferred stock financing below the Qualified Financing threshold before the Maturity Date, the Investor may elect, at their option, to convert on the same Cap / Discount mechanics described in §4. 6. LIQUIDITY EVENT On a sale or change of control before conversion or repayment, the Investor may elect to receive (a) cash equal to {{LIQUIDITY_MULTIPLE}}x the Principal plus accrued Interest, or (b) conversion into common stock at the Cap Price. // Founder note: 1x-2x is the standard liquidity multiple. This is the // "what if we get acquired before the next round" clause. 7. MATURITY WITHOUT QUALIFYING EVENT If no Qualified Financing or Liquidity Event has occurred by the Maturity Date, then at the Investor's election: (a) the Note is repaid in cash, or (b) the outstanding balance converts into common stock at a pre-money valuation of ${{MATURITY_CONVERSION_CAP}}, or (c) the Maturity Date is extended by written agreement. // Founder note: option (b) is the founder-friendly version. Without it, // the investor has the right to call the note in cash, which usually // means your company can't pay and you renegotiate from a bad seat. 8. NO SECURITY This Note is unsecured. // Founder note: standard. A secured note means the investor has a claim // on company assets if you default. Don't sign a secured note at seed. 9. SUBORDINATION This Note is subordinated to all current and future senior indebtedness of the Company. 10. REPRESENTATIONS, GOVERNING LAW, MISCELLANEOUS [Standard reps, warranties, governing law clause for {{STATE_OF_INCORPORATION}}, notices, counterparts, etc. Have counsel fill these.] 11. POST-MONEY VS PRE-MONEY CAP [ ] Pre-money valuation cap (legacy convention, used in older Cooley GO and ACA templates). [ ] Post-money valuation cap (YC SAFE convention, increasingly used in notes too, more dilution to founders, cleaner cap-table math). // Founder note: post-money caps give the investor a fixed ownership // percentage. Pre-money caps fix the price. If you're not sure which // you signed, you have not finished reading your note. Signed: COMPANY: INVESTOR: By: ___________________ By: ___________________ Name: {{FOUNDER_NAME}} Name: {{INVESTOR_NAME}} Title: {{FOUNDER_TITLE}} Date: ___________________ Date: ___________________