Convertible Note
1. Early Investment Without Valuation Pressure: Angels can invest without setting a valuation at the early stage, which is beneficial when startups are too nascent to be accurately valued.
2. Discount on Future Rounds: Convertibles often offer a discount (typically 10-30%) when the note converts to equity in a future priced round.
3. Valuation Cap: The valuation cap protects investors by ensuring they can convert their investment at a favorable price even if the company's valuation dramatically increases.
4. Accrued Interest: Interest typically accrues on the note and converts into equity, increasing the investor's final ownership stake.
5. Simple and Fast: Less complex than equity financing, convertible notes are quicker to execute and reduce legal costs.
SAFE Note (Simple Agreement for Future Equity)
1. No Debt Element: Unlike convertible notes, SAFE notes are not debt, so they don't accrue interest or have a maturity date, reducing pressure on the startup.
2. Valuation Cap: SAFE notes usually include a valuation cap that ensures investors can convert their investments at a favorable price during future financing rounds.
3. Discount on Future Rounds: Similar to convertible notes, SAFE notes often offer a discount upon conversion into equity in the next funding round.
4. Simplicity: SAFE notes are straightforward with minimal legal paperwork, making the process quicker and cheaper for both investors and startups.
KISS Note (Keep It Simple Security)
1. Hybrid of SAFE and Convertible Note: KISS notes combine the best of SAFE and convertible notes, offering either a debt-based (with interest) or equity-based option depending on the agreement.
2. Valuation Cap and Discount: Like convertible and SAFE notes, KISS notes often come with a valuation cap and discount for the next priced round, giving angels favorable terms when converting into equity.
3. Standardized Terms: KISS notes standardized terms to avoid prolonged negotiation, simplifying the investment process while still offering protection for investors.
4. Flexible Conversion Terms: KISS notes often offer more flexibility in how and when they convert to equity, which can be beneficial depending on the startup's growth trajectory.
Straight Equity
1. Ownership from Day One: Unlike notes, straight equity gives angel investors immediate ownership in the company, with defined equity shares and voting rights.
2. No Uncertainty on Conversion: Since the investment is directly in equity, investors avoid uncertainty around valuation caps, conversion discounts, or maturity dates.
3. Potential for High Upside: If the company scales successfully, the equity's value can grow significantly, leading to potentially substantial returns for the angel investor.
4. Greater Influence: Equity investors may receive more rights, such as board seats or protective provisions, giving them a stronger say in the company’s direction.
Summary
Convertible Note: Ideal for early-stage investment with uncertainty in valuation, offering capped conversion and interest accrual.
SAFE Note: Simple, fast, and debt-free with a valuation cap and discount, great for streamlined investments.
KISS Note: The hybrid structure offers flexibility and standardization with the benefits of convertible notes and SAFEs.
Straight Equity: Direct ownership from the start, offering clarity and potentially greater influence in the company's operations.
Each vehicle offers different investment benefits depending on the angel investor's risk tolerance, desired level of involvement, and the startup's stage of development.
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