Why 500 Canada prefers a KISS of a unicorn (instead of playing it SECURE)

Now that 500 Startups have made their mark in Canada, we thought it was time to present our legal documents affectionately known as KISS (“Keep it Simple Security”) to everyone. If you are a founder or an investor, give us five minutes of your time.

(But if you don’t have the time, then here’s the TL; DR: A KISS effectively sits between a convertible note and SAFE in terms of simplicity and balanced rights for the company and the investor. For example, KISS provides information and participation rights on SAFE, but does not impose protective provisions like a standard convertible note).

Convertible note financings have become increasingly complicated as companies push for complex conversion scenarios and an abundance of features.

In the past, convertible notes were one of the most popular ways to structure seed finance. If done right, convertible notes are a simple and effective way to close a fundraising round as they contain limited rights and postpone some of the more complicated negotiations until the (most important) price round. However, convertible note financings have become increasingly complicated as companies advocate complex conversion scenarios and an abundance of features. This complexity increases legal costs for businesses and investors, and lengthens the time it takes to close a deal.

More recently, Y Combinator released the SAFE, which was a big step forward in reducing costs and complexity and creating a true industry standard (we have used them repeatedly because we are a frequent investor in YC companies). We still had to see a form of financing that suited us, a balance between the interests of the founders and those of the investors. While historically investors have had more bargaining power than founders, we have sometimes felt the pendulum has gone too far, and smaller angel investors may well be the ones pressured to agree to terms. unbalanced. KISS legal documents were built on the shoulders of our predecessors and were designed with balance and simplicity in mind.

500 have put a lot of work into making KISS docs what we believe to be one of the best convertible instruments on the market and since launch in 2014, they have become our favorite approach when driving a tour. That said, we would love to see the KISS documents adopted by other companies and investors, reducing legal fees for everyone and removing some of the friction associated with closing a funding round.

And for this reason, we provide you with free Canadian versions of the KISS:

And finally, here’s a rundown of how the KISS compares to a standard convertible note and SAFE:

	SAFE	KISS Actions	KISS Debt	Convertible ticket
Instrument type	Of no interest No refund	Of no interest No refund	Earn interest Redeemable at maturity	Earn interest Redeemable at maturity
Valuation ceiling	Depends on the shape of SAFE	Yes	Yes	Yes
Delivery	Depends on the shape of SAFE	Yes	Yes	Yes
Treatment @ Funding	Automatic conversion into preferred shares. No threshold amount to trigger the conversion.	Automatic conversion into preferred shares with qualifying round of prices ($ 1 million)	Automatic conversion into preferred shares with qualifying round of prices ($ 1 million)	Automatic conversion into preferred shares with qualifying round (to be determined)
Treatment @ Maturity	N / A	Option to convert to stock at cap	Option to convert into shares at the limit, or redemption option	Option to convert into shares at the limit, or redemption option
Processing @ Acquisition	Option to (a) convert into ordinary shares at the cap or (b) be paid 1x the initial investment	Option to (a) convert into common stock at the cap or (b) be paid a multiple of 2x on the initial investment	Option to (a) convert into common stock at the cap or (b) be paid a multiple of 2x on the initial investment	Option to (a) convert into common stock at the cap or (b) be paid a multiple on the original investment
MFN	Applicable on the SAFE ‘MFN’ form (which has no limit or discount)	If the company issues better securities in the future, KISS investors can convert to these terms instead.	If the company issues better securities in the future, KISS investors can convert to these terms instead.	Uncommon in convertible notes.
Rights of main investors	None (no right to information or to participate)	Top investors ($ 50,000 +) get basic information and more than 1x investment or $ 300,000 participation rights	Top investors ($ 50,000 +) get basic information and more than 1x investment or $ 300,000 participation rights	The main investors obtain information and participation rights
Redemption rights	Nothing	Nothing	Nothing	Require the company to repurchase shares after a specified period of time
Protective provisions	Nothing	Nothing	Nothing	Require the company to seek approval for change of key employees, off-budget expenses, etc.
Other elements	–	–	–	May include liquidation preferences, board composition conditions, etc.

Many thanks to LaBarge Weinstein for working with us on this project. And a special mention to NACO for all their hard work with the Common Docs project. We are delighted to support their mission to provide founders and investors with more models.

If you have any comments and / or suggestions on how we can improve our documents, or if you would like to be included in the list of investors who have agreed to accept the forms, let us know by sending us an email. -mail to kiss @ 500startups. com.

We encourage you to review the terms of the KISS documents with your own lawyer before using them. 500 Startups assumes no responsibility for the consequences of using the KISS.

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