ContractsCounsel Logo

Lawyer for Convertible Note

Updated: March 28, 2023
Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 10,596 reviews
No Upfront Payment Required, Pay Only If You Hire.
Home Blog Lawyer for Convertible Note

Jump to Section

If you’ve decided to invest in a start-up company, you may need a lawyer's expertise for a convertible note. This investment is an exciting but somewhat complex process involving a formal agreement between a seed investor and issuing company with several vetting levels and legal forms. One form investors will encounter when investing in a start-up is the convertible note.

A convertible note is a type of short-term debt often used by companies not ready for valuation yet. These notes are then repaid by converting them into equity later, typically when the start-up secures future financing. In this article, we will discuss the role of a lawyer in convertible note investments.

What is a Convertible Note Lawyer?

If a start-up company receives an investment from a venture capitalist but still needs more capital to achieve its goals, it may need to issue additional securities. A convertible note is one of the most common types of such securities. These notes are considered a debt, or loan, to be repaid later.

A lawyer for a convertible note helps the start-up company and the investor to negotiate the terms and conditions of the investment and prepare the convertible note agreement. Typically, this type of investment has terms associated with it, usually outlined in an investor rights agreement, that can be negotiated by both the investor and the start-up company.

Senior Convertible Notes, a Simple Agreement for Future Equity (SAFE), a Keep It Simple Security (KISS), and a Simple Agreement for Future Tokens (SAFT) are other forms of convertible notes.

A convertible note, also referred to as convertible debt, typically has three parts:

  1. A description of the investment being made
  2. The amount being invested and when it will be paid back to the start-up company
  3. The conversion price or discount at which the investor can force conversion into equity in future rounds

The document also provides for certain events that would allow both parties to terminate the agreement with minimal penalties (e.g., bankruptcy).

A convertible note lawyer may also help negotiate the terms of converting the investment into equity. Converting a convertible note into equity requires two steps:

  • Step One: There must be another round of financing where equity can be sold at a higher valuation than in previous rounds
  • Step Two: If necessary, an amendment must be made to increase the number of shares available for issuance as well as their face value

Some convertible notes have provisions that allow them to convert automatically if certain conditions are met without requiring any action by either party; this provision is increasingly common in more sophisticated transactions.

Here is an article where you can read more about convertible notes.

See Convertible Note Pricing by State

What Do Convertible Notes Do?

Convertible notes are a financing mechanism that allows an issuing company to convert its debt into equity. They are generally issued in series and have an expiration date on which the full amount of the note must be repaid.

The borrower is then given a predetermined period of time to raise an equity round (or “follow-on”) so that they can pay back the entire loan, as opposed to just the remaining principal.

The benefits of convertible notes to seed investors include:

  • Discounts on future rounds. Because this financing reduces risk, an issuing company may offer smaller discounts on future rounds.
  • Better valuation control. Since issuing companies don't have to negotiate with existing shareholders for discount terms, they can have more bargaining power.
  • Faster time-to-exit. In case things go wrong, issuing companies can get out quickly without waiting for exit events like IPOs or acquisitions.

How Much Does a Lawyer for a Convertible Note Cost?

A lawyer for a convertible note will cost between $250-$1,000 per hour. Their total fee typically includes an hourly fee and any applicable retainer fee. The hourly fee is typically 1/3 to 1/2 of the total fees that you pay your lawyer.

The retainer fee is charged upfront and covers the costs involved with drafting and negotiating your convertible note agreement. It also determines how much your lawyer can spend working on your documents.

These are the usual fees associated with hiring a lawyer, however, it is common for convertible note lawyers to work on a contingency basis. This means that they only get paid when the start-up company raises money.

Here is an article that covers more examples of convertible notes and explains how they work.

Meet some lawyers on our platform

Daniel K.

7 projects on CC
CC verified
View Profile

Jeremiah C.

96 projects on CC
CC verified
View Profile

Scott S.

61 projects on CC
CC verified
View Profile

Daniel R.

128 projects on CC
CC verified
View Profile

Key Terms in a Convertible Note

Convertible notes are a popular funding round for start-ups. If you're raising money with a convertible note, here are terms to consider adding before you sign:

  1. Notice of Conversions. A notice of conversion is a formal document that an investor submits to the company when they want to convert their investment into equity.
  2. Conversion Price. The conversion price is the price per share the investor will receive when they convert their investment into equity.
  3. Conversion Discount. The conversion discount is the percentage discount the investor will receive on the equity price when they convert their investment. For example, if the conversion price is $0.50 per share and the equity price is $1.00 per share, the seed investor will receive a 50% discount on the equity price.
  4. Cap. The cap is the maximum price per share the investor will pay when converting their investment into equity. For example, if the cap is $1.00 per share and the equity price is $2.00 per share, the seed investor will only pay $1.00 per share when they convert their investment.
  5. Interest Rate. The interest rate is the percentage of the principal investment that the investor will accrue as interest.
  6. Maturity Date. The maturity date is the date on which the investment will mature, and the investor will be able to convert their investment.
  7. Warrants. A warrant is a type of security that gives the holder the right to purchase shares of the company's stock at a set price. Warrants are often included in convertible notes to sweeten the deal for the seed investor.

Here is an article about the terms in convertible notes.

Do I Need a Lawyer for a Convertible Note?

The short answer is most likely. Convertible notes are a popular financing mechanism that allows start-ups to raise capital without giving up an equity stake. However, while a convertible note can be a great investment option for many issuing companies, conversion can be tricky, and several factors determine the outcome.

This is because many potential pitfalls associated with convertible notes can be detrimental to the investor. Some of the potential risks include the following:

  1. The convertible note may be structured in a way that could be more favorable to the investor.
  2. The start-up may need help to raise additional funding, meaning that the investor may be stuck with a debt that cannot be converted into equity.
  3. The terms of the convertible note may be changed at the discretion of the start-up, which can be detrimental to the investor.

Overall, convertible notes can be a great investment for many start-ups, but it is important to know the potential risks before becoming a seed investor. Again, an experienced lawyer can help you navigate the complex legal landscape and protect your interests.

Here is an article about different forms of convertible debts.

Post a project in ContractsCounsel’s marketplace to receive flat fee bids from lawyers for your project. All lawyers have been vetted by our team and peer-reviewed by our customers for you to explore before hiring.

Need help with a Convertible Note?

Create a free project posting

Meet some of our Lawyers

Jeremiah C. on ContractsCounsel
View Jeremiah
5.0 (42)
Member Since:
March 5, 2021

Jeremiah C.

Partner/Attorney at Law
Free Consultation
16 Yrs Experience
Licensed in NV, TX
Thomas Jefferson

Creative, results driven business & technology executive with 24 years of experience (15+ as a business/corporate lawyer). A problem solver with a passion for business, technology, and law. I bring a thorough understanding of the intersection of the law and business needs to any endeavor, having founded multiple startups myself with successful exits. I provide professional business and legal consulting. Throughout my career I've represented a number large corporations (including some of the top Fortune 500 companies) but the vast majority of my clients these days are startups and small businesses. Having represented hundreds of successful crowdfunded startups, I'm one of the most well known attorneys for startups seeking CF funds. I hold a Juris Doctor degree with a focus on Business/Corporate Law, a Master of Business Administration degree in Entrepreneurship, A Master of Education degree and dual Bachelor of Science degrees. I look forward to working with any parties that have a need for my skill sets.

Rishma E. on ContractsCounsel
View Rishma
5.0 (1)
Member Since:
October 1, 2020

Rishma E.

Free Consultation
Miramar, FL
10 Yrs Experience
Licensed in FL
St. Thomas University School of Law

Rishma D. Eckert, Esq. is a business law attorney who primarily represents domestic and international companies and entrepreneurs. A native of both Belize and Guyana, she remains engaged with the Caribbean community in South Florida: as a Board Member and General Counsel for the Belize American Chamber of Commerce of Florida, and Member of the Guyanese American Chamber of Commerce. She holds a Bachelor of Laws degree (LL.B.) from the University of Guyana in South America, a Master’s degree in International and Comparative Law (LL.M.) from Stetson University College of Law in Gulfport, Florida, and earned a Juris Doctor degree (J.D.) from St. Thomas University School of Law in Miami, Florida. Licensed to practice in the State of Florida and the Federal Court in the Southern District of Florida, Mrs. Eckert focuses her passion and practice on domestic and international corporate structuring and incorporation, corporate governance, contract negotiation and drafting, and trademark and copyright registrations.

Kiel G. on ContractsCounsel
View Kiel
5.0 (1)
Member Since:
October 2, 2020

Kiel G.

Free Consultation
Hollywood, FL
7 Yrs Experience
Licensed in FL
Florida State University

Founder and Managing partner of Emerald Law, PLLC, a business law firm specializing in contract drafting and corporate transactions. Kiel worked as in house counsel for a variety of companies before launching his own firm, and most recently served as the Chief Legal Officer for an international private equity firm.

Jane C. on ContractsCounsel
View Jane
4.9 (82)
Member Since:
October 9, 2020

Jane C.

Free Consultation
New York
19 Yrs Experience
Licensed in CT, DC, NY
Pace University School of Law

Skilled in the details of complex corporate transactions, I have 15 years experience working with entrepreneurs and businesses to plan and grow for the future. Clients trust me because of the practical guided advice I provide. No deal is too small or complex for me to handle.

Mark A. on ContractsCounsel
View Mark
Member Since:
October 2, 2020

Mark A.

Free Consultation
Jacksonville, FL
20 Yrs Experience
Licensed in FL
University of Florida

Mark A. Addington focuses his practice primarily on employment litigation, including contractual disputes, restrictive covenants (such as non-competition, non-solicitation, or confidential information restrictions), defense of wage and hour, harassment, retaliatory discharge, disability, age, religion, race, and sex discrimination.

Find the best lawyer for your project

Browse Lawyers Now

Need help with a Convertible Note?

Create a free project posting
See All Startup Lawyers
Learn About Contracts
See More Contracts
other helpful articles

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

View Trustpilot Review

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

View Trustpilot Review

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

View Trustpilot Review

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

View Trustpilot Review

Need help with a Convertible Note?

Create a free project posting

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city