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In a rolling round, is each investment negotiated at a different price? Or does the company sell X shares at Y price, first-come, first-served? The former sound

In a rolling round, is each investment negotiated at a different price? Or does the company sell X shares at Y price, first-come, first-served? The former sounds like a lot of work; the latter gives people an incentive to delay even more (they'll have made an investment with more information than the prior investors. And, of course, they'll have cash on hand in the interim.)

ankeshk 16y ago
Rolling round is done with convertible notes. No valuation talks take place. Convertible notes are loans that can be converted into equity if some predetermined event takes place (usually you raise another round of money or you get a buy out offer.) You're not selling X shares at Y price. You're issuing a loan that may get converted into X shares. Every investor who gets these convertible notes usually will end up getting the same valuation in the future if the note converts to equity. So with rolling round, you're just taking on debt. And you can take as much debt as you want to (unless you've added a clause in any of the notes that determines that you can't go over a certain amount of debt.)
- deleted 16y ago
  [deleted]
- Harj 16y ago
  Rolling round is done with convertible notes. No valuation talks take place. that's not true, most of the convertible notes we're seeing include a valuation cap in them i.e. the investor never converts their debt at a valuation higher than the cap. the cap addresses the main criticism of convertible notes, namely they misalign the incentives of the founders (who want a high valuation for their next funding event) and investors (who want a lower valuation for the next round so they get more stock).
  - sachinag 16y ago
    I think it'd be great if YC published a standard note that has the cap (with both a dollar and percentage) that accommodated rolling closes like y'all did for the Series AA docs. Given that this is now the new hotness, it'd make seed investing even more efficient, especially for startups outside the Valley who may not have relationships with up-to-the-minute legal help.
    - pg 16y ago
      You're right; we'll do that.
Harj 16y ago
In most cases, where you're talking to investors simultaneously you do the note on the same terms for each investor. The exception to this would be e.g. I intend to raise $150k, i get this amount of money in the bank and then more investors want to participate. I can bring them in but I could argue for a higher valuation since they're coming in once I have money in the bank i.e. at less risk than the investors who initially put in $150k and therefore deserve the lower valuation. Other exceptions might be where an investor brings particular value that warrants a lower price e.g. you're working on payments and Max Levchin wants to invest

ankeshk 16y ago

Rolling round is done with convertible notes. No valuation talks take place. Convertible notes are loans that can be converted into equity if some predetermined event takes place (usually you raise another round of money or you get a buy out offer.) You're not selling X shares at Y price. You're issuing a loan that may get converted into X shares. Every investor who gets these convertible notes usually will end up getting the same valuation in the future if the note converts to equity. So with rolling round, you're just taking on debt. And you can take as much debt as you want to (unless you've added a clause in any of the notes that determines that you can't go over a certain amount of debt.)

deleted 16y ago
[deleted]
Harj 16y ago
Rolling round is done with convertible notes. No valuation talks take place. that's not true, most of the convertible notes we're seeing include a valuation cap in them i.e. the investor never converts their debt at a valuation higher than the cap. the cap addresses the main criticism of convertible notes, namely they misalign the incentives of the founders (who want a high valuation for their next funding event) and investors (who want a lower valuation for the next round so they get more stock).
- sachinag 16y ago
  I think it'd be great if YC published a standard note that has the cap (with both a dollar and percentage) that accommodated rolling closes like y'all did for the Series AA docs. Given that this is now the new hotness, it'd make seed investing even more efficient, especially for startups outside the Valley who may not have relationships with up-to-the-minute legal help.
  - pg 16y ago
    You're right; we'll do that.

Harj 16y ago

In most cases, where you're talking to investors simultaneously you do the note on the same terms for each investor. The exception to this would be e.g. I intend to raise $150k, i get this amount of money in the bank and then more investors want to participate. I can bring them in but I could argue for a higher valuation since they're coming in once I have money in the bank i.e. at less risk than the investors who initially put in $150k and therefore deserve the lower valuation. Other exceptions might be where an investor brings particular value that warrants a lower price e.g. you're working on payments and Max Levchin wants to invest