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A KISS note (Keep It Simple Security) is a simplified investment structure resembling a convertible note and helps get capital faster than conventional methods. It is an agreement made between a company and an investor. The signing of the note begins with the investor investing money in the company and receiving the right to purchase shares in the future equity round.
500 Startups created the KISS convertible notes that were made publicly available for everyone. The notes were developed in response to the lack of any investor protection during new collaborations with startups. A KISS note is a conceptual agreement that works depending on the following factors:
- The investor lends finances to a startup, and the loan accumulates the interest amount.
- The investors can exercise their rights to convert the loan into equity if the company grows and becomes profitable.
The KISS convertible note is an efficient medium for investors for multiple reasons:
- It defers the requirement to put any value on the early-stage or pre-revenue companies.
- It allows the investor to convert the note into equity if certain conditions are met, such as the company raising a certain amount of financing.
- It helps shield a company from unwanted outcomes that may happen because of an overhaul of the investor’s stake in it.
What Are the Significant Versions of a KISS Note?
Two significant versions of a KISS note include debt and equity.
The debt version of the KISS note conducts the following functions:
The equity version of the KISS note conducts the following functions:
- It does not assign any specific interest or maturity date.
- The KISS note automatically converts the principal and interest into a preferred stock once the company raises at least $1 million in financing.
What Are the Features of a Kiss Note?
Here is a list of features related to the KISS note:
- Identical Terms: All KISS convertible notes are based on the same terms and conditions. The agreements do not allow high-resolution financing at different valuation caps for the founders or investors.
- MFN (Most Favored Nation) Clause: If the company offers a KISS note or convertible instrument with beneficial terms to another investor, the team has to offer the same to their first investor.
- Control and Dividends: An investor does not have any management rights to receive dividends until the KISS note is converted into shares.
- Accounting: A KISS note is not treated as debt on the financial statements of the investors or the company.
Why Should Investors Choose the KISS Note?
The KISS note provides simple and standard ‘open-source’ templates for investors to invest in early-stage companies. Investors use the KISS conceptual notes primarily because they bring simplicity and consistency to the investment processes while offering protection from potential risks.
Not only that but the KISS note offers a few more benefits to the investors that include the following:
- It provides MFN clauses that allow investors to get securities on more favorable terms.
- It also grants additional rights to all major investors interested in new ventures and collaborations.
What Do the Early-Stage Companies Get from the KISS Note?
During the initial fundraising round, KISS notes save time and expenses for the early-stage companies and their founders. Moreover, the agreements also provide a platform for investors to choose the startups to invest their finances. Here is a list of benefits that the founders of early-stage companies or startups can incur from the KISS note:
- The note eliminates the requirement to negotiate terms with investors or pay hefty fees to attorneys to sign deals.
- The KISS Notes are identical and do not leave space for any errors or discrepancies in the agreement terms and conditions.
- The notes are identical series that sound appealing to the investors so that the founders can access the capital instantly.
What Are the Things to Keep in Mind Before Signing A KISS Note?
Although the KISS note may be helpful for both the founders and the investors, a few things should be kept in mind before agreeing.
It is advised that the founders or the investors should not skip an attorney review before finalizing the KISS note. They should not pick any random open-source agreement and hand it off to the interested investor. The concerned parties should approach a professional lawyer well-versed in financing to review the document and explain the possible outcomes.
Every business organization is different, so the founders must ensure that they do not promise anything on the KISS Note that may lead to unwanted outcomes in the future. It may lead to massive losses or the investors backing off the deal.
The founders must be sure whether the KISS note holds significance for their new venture before giving it the go-ahead for upcoming collaborations with investors. If confused, they can seek legal help from an attorney who can help them find the resources to make the best decisions. The process also helps ensure that the company is in the right place and on deadline with its obligations to the investors.
Key Terms Related to a KISS Note
Here is a list of key terms related to the KISS note:
- Investor: An individual or organization who spends money on property, financial schemes, new ventures, etc.
- Company: A commercial business dealing with different products or services.
- Stock: The capital amount a company or corporation raises through the subscription or issue of shares.
- Investment: The process of spending money to earn profit.
- Simple Agreement for Future Equity (SAFE): An agreement that provides a future equity stake to the investor.
- Principle: The original sum committed to the purchase of particular assets in business.
- Asset: A resource that holds economic value to a company, individual, investor, or country with expectations for future benefits.
Investors and companies can seek help from the KISS note to outline the terms and conditions of their collaborations and deals. The best part about convertible notes is that they benefit both parties and help convert profits into preferable stocks. However, the KISS note is a comprehensive document that may be complex for investors or companies to understand. That is why it is advisable to seek legal help in finalizing the notes.
If you want to use KISS notes for investment purposes, visit Contracts Counsel now for the best legal assistance. Our professional attorneys are well-versed in financial matters and can help you with all your requirements related to convertible notes. Visit the official website and state your requirements for a project now!