Start Up – Angel Investing Notes

Typically, what happens with convertible notes is that when the company raises $$, the notes automatically convert to equity. If they can’t convert, then they pay you out, and the interest rate is usually between 3-8%. Generally speaking, they always convert or the company goes bankrupt because you are investing in a startup that requires raising money to survive, so it doesn’t even matter what the note interest rate is.  In this case, I guess he’s saying that he gives investors the opportunity to invest in so-called lifestyle businesses and then get protected from a company never having a liquidity event. This way, they have to pay you back your 3x over some period of time, even if they don’t go on to raise institutional capital. This is essentially a small business loan then. One risk is that the company can extend the payment of your note over time I think, and they don’t have to pay you in full at maturity, which seems to be the whole point.  Also, I’m not sure if the notes convert upon the company raising money. The link to the legal doc didn’t work.
In addition, a $5K setup fee is pretty high per individual, unless you’re investing like $200K.  Then as mentioned, it’s hard to invest in companies unless you have a fairly strong opinion about the industry or business.  If I were to invest in startups without having a strong tech background, I might look at seedinvest or angellist where you can join syndicates with a track record or look at deals that have been curated a bit better.
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