FOR IMMEDIATE RELEASE

December 4, 2024 — The Angel Capital Association (ACA) is proud to announce the release of an updated version of its Model Convertible Promissory Note, initially published in June 2024. This update reflects the ACA’s commitment to streamlining early-stage financing processes and supporting the venture ecosystem with best-practice templates.

The rise of convertible instruments in early-stage financings has led to a demand for standardized, investor-friendly documents. While SAFEs (Simple Agreements for Future Equity) are based on well-known forms, Convertible Promissory Notes have lacked an industry-standard template—resulting in inefficiencies and increased costs for investors and founders alike.

The ACA convened a task force of experienced early-stage investors and legal experts to address this gap. The result is a model Convertible Promissory Note that incorporates widely-used provisions from side letters and note purchase agreements into a streamlined, balanced template. This updated document offers investors enhanced protections while maintaining a fair balance for founders.

Key Updates in the Model Convertible Promissory Note:

• Expanded Representations and Warranties: Focuses on critical information valued by early-stage investors without overburdening startups.
• Participation Rights in Future Financings: Allows noteholders to maintain their proportional ownership in future rounds.
• Select Information Rights: Provides access to essential company information during the note term.
• Optional Most Favored Nations (MFN) Provision: Protects investors if more favorable terms are later granted to new noteholders.
• Optional Board Observer Seat or Full Board Seat:
• Offers noteholders either an observer role or full board participation for governance insight.
• Corporate Transparency Act Compliance Clause: Ensures compliance with new regulatory requirements.
• Protective Provisions: Requires majority noteholder approval for significant corporate decisions during the note period.

Enhancing Early-Stage Venture Ecosystem Efficiency
The ACA’s new model document reduces the time and cost associated with Convertible Notes while establishing “best practice” industry standards. This effort is expected to empower early-stage investors and founders by improving education, reducing friction, and providing a clear framework for negotiations.

This update is part of the ACA’s ongoing commitment to periodically review and enhance its model documents in line with market trends and legal developments. The latest version is now available on the ACA website.

Task Force Members

The creation of this model was led by a distinguished team of investors and attorneys:

• Chair: Elizabeth D. Sigety, Esq. (Fox Rothschild, LLP, Delaware Crossing Investor Group)
• Mark Friedman (RTP Capital)
• Dror Futter, Esq. (Rimon Law)
• John Habbert (Queen City Angels)
• Sonu Mirchandani (College of Business and Technology, ETSU)
• Benjamin David Novak, Esq. (Morgan, Lewis & Bockius LLP, Delaware Crossing Investor Group)
• Clay Rankin (North Coast Ventures)
• Ronald Weissman (Band of Angels)

Special thanks to past task force members David Sikes, Esq. (Goodwin Law) and Joe Wallin, Esq. (Carney Law) for their contributions.

For more information or to download the updated Model Convertible Promissory Note, visit the Angel Capital Association website at www.angelcapitalassociation.org.

Media Contact:

For interviews or further inquiries, please reach out to Dannielle Stewart, Director of Marketing, Angel Capital Association.