In July 2014, 500Startups announced the birth of the KISS convertible bond, which is an alternative investment vehicle to a SAFE instrument. It contains many similarities with SAFE convertible bonds. Its goal is to enable start-ups to obtain financing in a short period of time and at low cost, while avoiding the lengthy process of negotiating the preparation of a grant agreement by an investor. To better understand the KISS convertible bond, let`s talk about the clauses of the KISS banknote model (most of them are present in both types of KISS convertible bonds. Types explained below). The clauses include: There are two types of KISS convertible bonds that you can use depending on the type of agreement you have with the investor. These are the KISS Note debt version and the KISS convertible bond stock version. To explain to everyone: A basic form of KISS that means keeping a title agreement simple. In short, to keep convertible equity financing simple and fast, 500Startups created the KISS rating template.
The KISS convertible bond is a short and soft ”open source” document created after discussions with many Silicon Valley law firms and early-stage investors. This KISS note template was created to be flexible without being too customizable. It is simple and yet contains all the necessary features that are balanced from both the investor and the company`s point of view. All the details have been added as seen in the image. Some fields are not visible at the beginning. However, if you add the details according to the agreement, the fields will be displayed. You must fill in the following details: The KISS instrument does not allow easy high-resolution financing and all KISS in a given series must have identical conditions. The KISS rating model is much more complex than the SAFE convertible bond, but it is much more balanced. Another innovation of the safe concerns a ”proportionate” right.
The original vault required the Company to allow vault holders to participate in the funding round after the funding round in which the vault was converted (for example, if the vault were converted to Series A preferred share financing, a safe holder – now holding a sub-series of Series A preferred shares – would be likely to purchase a proportionate portion of the Series B preferred shares). However, while this concept was consistent with the original vault concept, it made less sense in a world where vaults were becoming independent funding cycles. Thus, the ”old” pro-rata right will be removed from the new vault, but we have a new model cover letter (optional) that offers the investor a pro-rated right in Series A preferred share financing based on the investor`s converted safe ownership, which is now much more transparent. Whether or not a startup and an investor enter the cover letter with a safe will now be a decision for the parties to make, and it can depend on a variety of factors. Factors to consider may include (among others) the purchase amount of the vault and the amount of future dilution that the pro-rata right will entail for the founders – an amount that can now be predicted with much more accuracy when using post-money safes. The next method used for KISS notes is the property percentage method. In this method, the percentage of ownership of the company that the investor buys is determined and the other variables are calculated on this basis. In fact, the same result would be achieved if the post-monetary valuation were established. Using the above assumptions, the price per share for new investors would be $6.57 per share, which is the mathematical result to get a 20% stake. Since the shares will be issued upon conversion of the bonds, the bondholders will hold part of the company after the conversion.
And this will reduce the ownership of existing shareholders, where they will own less than 80% of the company or the Series A investor will own less than 20% of the company. Our updated safes are therefore ”post-money” safes. By ”post-money” we mean that the possession of the safe holder is measured after (post) all the safe money has been settled – which is now a separate round – but always before (before) the new money in the price round that converts and dilutes the safes (usually the A series, but sometimes the seeds in series). In our opinion, the post-money safe has a great advantage for founders and investors – the ability to immediately and accurately calculate the amount of ownership of the company that has been sold. It`s crucial for founders to understand how much dilution is caused by each vault they sell, just as it`s fair for investors to know how much of the company`s property they bought. From here you can see how the bond affected the company`s committed capital and the company`s capitalization chart. Basically, you can easily create a KISS rating on Eqvista with these steps. After explaining the KISS convertible bond, let`s talk about how it is calculated and converted. Overall, bond alternatives such as the KISS convertible bond can offer additional funding opportunities for investors and founders who wish to raise or contribute early childhood capital. .