Today we will look at some of the reasons that make convertible note a preferred choice for very early-stage startups.

There are broadly four major points - ► No valuation required - At a very early stage, you do not have a lot of data to come up with or support some valuation. For example, if a startup is just two people and 3-months old, how much equity should an investor receive for a $100k investment? Thus, the convertible note helps you to raise money and at the same time push down the valuation discussion until the next equity round of financing.

► Quicker and less cost - In the initial days, execution and speed matter a lot. A round with a convertible note should take a few days and comparatively less legal cost, as compared to an equity round of financing, where there’s a lot more discussion, negotiation, and diligence, along with more legal cost.

► Controls - Usually when investors get shares of preferred stock, they are also given certain control rights, such as board seats and other preferential rights. The convertible note can help you to avoid giving the investors such control at the early stage.

► High-Resolution Fundraising - Since different caps can be agreed upon with different investors, this allows startups to raise funds faster rather than waiting for more investors to commit (“who else is investing?”). Back in 2010, Paul Graham (from Y Combinator) introduced the idea of “high resolution fundraising” which was made possi