Understanding Cadi's current offering. A convertible note.

November 29, 2023

Thank you for your interest in Cadi.

A convertible note is a common financial instrument used for investing in startups. It represents a short-term debt that can convert into equity (ownership shares) in the startup at a future date, typically during a subsequent funding round. Here's a summary of the key terms associated with a convertible note, using the provided terms as an example:

  1. Raise Amount: In this case, the startup plans to raise $250,000 through the issuance of convertible notes. This represents the total amount of capital they intend to secure from investors.
  2. Term: The term of the convertible note is set at two years. This means that the note will mature, and the conversion option will become available after two years from the date of issuance.
  3. Minimum Investment: Investors interested in participating in this convertible note offering must commit a minimum of $5,000. This minimum investment amount ensures that the startup can attract a sufficient level of funding.
  4. Discount: A discount of 20% is applied to the conversion price when the note converts into equity. This means that note holders will be able to convert their debt into equity at a price 20% lower than the price set in a future equity financing round.
  5. Valuation Cap: The valuation cap is set at $12 million. It represents the maximum pre-money valuation at which the convertible note can convert into equity. If the startup's valuation in a subsequent funding round is lower than the cap, the conversion will be based on the lower valuation.
  6. Interest Rate: The convertible note accrues interest at an annual rate of 7%. This interest is typically added to the principal amount of the note and can convert into equity along with the principal upon conversion.

In summary, a convertible note is a financial instrument that allows investors to provide capital to startups as a loan, with the expectation that the debt will convert into ownership shares (equity) in the startup at a future point, typically during a subsequent financing round. The terms outlined, such as the discount, valuation cap, and interest rate, are designed to provide incentives for early investors while helping to determine the conversion terms when the note matures. It's a flexible and commonly used tool in startup financing that benefits both investors and entrepreneurs.

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