The Convertible Equity Agreement emerged as an alternative to convertible notes, particularly suitable for early-stage companies seeking investment without debt obligations. This instrument, primarily used in the United States, allows companies to defer equity pricing while providing investors with rights to future shares. The agreement typically includes provisions for automatic conversion upon qualified financing, change of control provisions, and specific investor rights. It's particularly popular among startups looking to raise seed funding while maintaining flexibility in future financing rounds. The document must comply with U.S. securities laws, including Regulation D requirements for private placements.
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1. Parties: Identification of the company and investor(s)
2. Background: Context of the investment and purpose of the agreement
3. Definitions: Key terms used throughout the agreement
4. Investment Amount: Specifies the amount being invested and payment terms
5. Equity Rights: Details of conversion rights and triggering events
6. Conversion Mechanics: Process and calculations for converting to equity
7. Company Representations: Standard company warranties and representations
8. Investor Representations: Investor warranties including accredited investor status
9. Governing Law: Applicable jurisdiction and dispute resolution
1. Pro-rata Rights: Right to participate in future rounds - typically included for larger investors requiring future participation rights
2. Information Rights: Rights to receive financial information - typically included for sophisticated investors requiring regular updates
3. Board Observer Rights: Right to attend board meetings - typically included for strategic investors requiring closer involvement
4. Most Favored Nation: Protection against better terms given to other investors - typically included for early investors requiring protection against future terms
1. Cap Table: Current capitalization of the company
2. Investor Questionnaire: Accredited investor verification form
3. Disclosure Schedule: Exceptions to company representations
4. Form of Stockholder Agreement: Rights and obligations post-conversion
5. Conversion Calculations: Detailed methodology for conversion calculations
Relevant legal definitions
Clauses
Relevant Industries
Relevant Teams
Relevant Roles
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