Side Letter: Convertible Note Financing (Seed-Stage Startup)

This legal template, titled "Side Letter: Convertible Note Financing (Seed-Stage Startup)", is a document designed to outline and formalize the terms and conditions of a convertible note financing agreement specific to a seed-stage startup company. A convertible note is a type of debt instrument commonly used in early-stage fundraising, where investors provide capital to a startup in exchange for a promise that the debt will convert into equity at a future predetermined event, typically during a subsequent funding round.

The template side letter covers various aspects relevant to the convertible note financing arrangement, including the specific terms of the debt instrument, such as principal amount, interest rate, maturity date, and conversion mechanics. It also includes provisions related to the startup's corporate governance, investor rights, restrictions on further debt issuance, and any other negotiated terms between the startup and the investor or investor group.

The purpose of this side letter is to clearly outline the terms of the convertible note financing to mitigate potential misunderstandings or disputes between the startup and the investors, ensuring a clear understanding of respective rights, obligations, and expectations. This template is tailored to seed-stage startups, typically representing their initial fundraising efforts, where convertible note financing is frequently utilized due to its flexibility and simplicity in comparison to more complex equity financing instruments.

It is important to note that while this side letter provides a structured framework, it should be reviewed and customized by legal professionals according to the specific circumstances and needs of the parties involved.