Are convertible notes typically issued along with stock in Series A?

David S. Rose
David S. Rose , Founder and CEO , GUST INC.
25 Aug 2013

“Series A” is a shorthand way of referring to what is typically the first institutional round of investment in a company, made in the form of purchasing Convertible Preferred Stock. A “Convertible Note” is a loan to the company, in which the principal (and often the interest earned to date) converts into Convertible Preferred Stock, typically at the time of the Series A institutional investment round.

So under most scenarios it would not make sense to do both at the same time.  The Convertible Preferred Stock of the Series A functions in many ways like a note, having priority over Common Stock in the liquidation waterfall.

The question therefore would be “what purpose are you trying to achieve?” by doing both at the same time. It’s likely that any intended goal of this type of strategy would be better served either by modifying the terms of the Series A itself, or by issuing warrants along with the Series A.

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This article is intended for informational purposes only, and doesn't constitute tax, accounting, or legal advice. Everyone's situation is different! For advice in light of your unique circumstances, consult a tax advisor, accountant, or lawyer.