Introduction
During the onboarding process, the workflow will ask you about your past fundraising events, including Convertible Notes, SAFEs, and Equity Financings. If your company has raised funds, you'll need to know the date of the closing and indicate which investment vehicle was used.
This article is designed to help you navigate the financings section of your onboarding workflow, during which you'll be asked to fill in details like dates and investment amounts.
Four main types of investments
There are typically four main types of investments. You should be able to tell based on the first page and title of your document what sort of documents you have. If you're still not sure what documents you're dealing with, you might consider asking your lawyer.
- Bridge Note or Convertible Promissory Note: A bridge note is a short-term loan typically issued by a company in anticipation of its first round of institutional financing or between rounds of financing. To read about the basics of bridge notes, check out our Bridge Note (Convertible Note) article.
- Equity Financing: Equity financing is the process of raising money through the sale of preferred stock in the company. To read more about the basic concepts and documents of this fundraising vehicle, read our article on Equity Financing.
- Simple Agreement for Future Equity (SAFE): SAFEs involve a cash investment into a company that will convert to equity at the occurrence of a specified event. Unlike other convertible instruments, a SAFE isn’t debt so it doesn’t have a maturity date or an interest rate. The SAFE will simply remain outstanding until the conversion event occurs. To read more about the basic concepts of a SAFE, read our article What is a SAFE?
- KISS: The Keep It Simple Security (KISS) is very similar to a SAFE.
A note on Common Stock investments
A note on accelerators and the fifth type of investment: while incubators or accelerators may take shares in the company in their cohort in any of the ways you see above, there's also another way we sometimes see accelerators take stock in startups: a basic stock agreement. Some investors also agree to take Common Stock in a company in exchange for their investment.
With a common stock financing, the agreement indicates that an investor will get Common Stock instead of taking a Note/KISS/SAFE that will convert to Preferred Stock.
If you see this scenario, you should enter these details in the Equity section of your onboarding workflow, select stock purchased as part of a financing, and then Common Stock as the type of security purchased.
FAQs
How do I know if my investment was from convertible debt, equity financing, or SAFE/KISS?
The only way to know is to take a look at the documents you and your investors signed. If you know, for example, that your investor gave you $100,000, but you're not sure if it was structured as convertible debt, an equity financing, or a SAFE/KISS, review the documents that were signed in connection with their investment.
If it's a convertible note or bridge note, the documents will usually say something like "Convertible Promissory Note," or "Convertible Note" in the title.
If it's an equity financing, the title of the document will usually say something like "Series Seed Stock Purchase Agreement" or "Series A Stock Purchase Agreement."
If it's a SAFE, the documents will probably say, "Simple Agreement for Future Equity" in the title.
A KISS will most likely have "Keep it Simple Security" in the title.
Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.
Fidelity Private Shares LLC provides cap table management and other administrative services to private companies and their equity compensation plans.
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