During the onboarding process, Shoobx will ask you about your past fundraising events, including convertible notes, SAFEs, and equity financings.
If you have raised funds, you'll need to know the date of the fundraising and indicate which investment vehicle was used—equity financing, convertible note, SAFE, or KISS.
A lot of clients are in the following situation: they know investors invested money in their company, but when they're faced with the prospect of determining exactly what sort of investment vehicle was used, they're stuck.
This article is designed to help you figure out the question, "I took an investment, but what kind was it?" After selecting the type of financing, Shoobx will prompt you to fill in the necessary details, which this article will help you identify and better understand.
- Four main types of investments
- A note on a "fifth type"—the Basic Stock Agreement
- Frequently Asked Questions
Four main types of investments
There are typically four main types of investments that we see at Shoobx. 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 aka Convertible Promissory Note: A bridge note is a short-term loan typically issued by a company in anticipation of its first round of institutional equity financing or between rounds of equity financing. To read about the basics of bridge notes, check out our "Bridge Note (Convertible Note)" toolbox article.
- Equity Financing: Equity financing is the process of raising money through the sale of ownership in the company. To read more about the basic concepts and documents of this fundraising vehicle, read our article, Equity Financing.
- 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 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 basics concepts of a SAFE, read our article, What is a SAFE?
- KISS: In a nutshell, the “Keep It Simple Security” (KISS) is very similar to a SAFE.
A note on a "fifth type"—the Basic Stock Agreement
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 (SAFE, KISS, Equity financing, Bridge Note), there's also another way we sometimes see accelerators take stock in startups: a basic stock agreement.
With a basic stock agreement, they are using a stock agreement to obtain common stock in the company instead of taking a note/KISS/SAFE that will convert to preferred stock.
If you see this scenario, you should put these shares in Shoobx the same way you would any other RSA outside of the plan.
Frequently Asked Questions
- 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 Raviga Capital gave you $100,000, but you're not sure if it was structured as convertible debt, equity financing, or a SAFE/KISS, dust off the documents that went along with their investment.
- If it's a convertible debt aka bridge note, the documents will usually say something like "Convertible Promissory Note," or "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.
If you have any questions that are not addressed in this article let us know by emailing email@example.com!