When a startup uses a convertible note to raise funding and the note is convertible upon closing of Series A round. Can the startup just pay back the money? Even if there's no mention of buy back in the contract, since it's just a loan. What does the law say about this situation?
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I don't think so. Otherwise it is a lose-lose situation for the investor. If the startup fails, the investor loses his money. If the startup succeeds in getting Series A funding, then he just gets his money back plus interest. No investor would take that deal. |
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It all depends on the note and the buy back clause. Most convertible notes have a buy back clause for just such a purpose. As far as I know, there is no law about how to buy it back -- it's really up to the two parties and the contact they signed. If you really want to buy it back, then the best thing to do is talk to the investor and figure out a deal. |
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