Convertible Notes & Equity Agreements

June 27, 2025
by
Patrick Waldo
Legal
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Venture Capital (VC) is at the heart of innovation and lawyers too are required from incorporation through exit. Yet, many people refer to it as a “cottage industry.” How can they join the digital transformation to be as efficient and data driven as the companies they invest in?

Many VCs remain hesitant to adopt contract automation tools, despite the prevalence of investment in AI and Automation startups over the last 5 years. This paradox stems from several misconceptions and industry-specific challenges that hinder adoption. 

UnicornForms is here to break the mold, offering a solution tailored to the unique needs of venture capitalists, family offices, angels and lawyers. Let’s explore why they have shied away from contract automation tools and how UnicornForms is poised to change their perspective.

Why VCs Avoid Contract Automation Tools

  1. Highly Customized Contracts - Venture capital deals often involve highly tailored agreements, including term sheets, investment agreements, and side letters. Standard contract automation tools are not equipped to handle the level of customization required, leading to concerns about accuracy and flexibility.
  2. Perception of Complexity - Many contract automation tools are perceived as complex and require a steep learning curve, paralegals or legal IT departments. For VCs who manage multiple deals simultaneously, investing time to learn new software can feel counterproductive.
  3. Fear of Losing Control - Legal agreements are critical in protecting the interests of all parties involved. Many VCs prefer to rely on their legal counsel and manual oversight to ensure every detail is correct, fearing that automation might lead to errors or oversights.
  4. High Stakes of Errors - A minor error in a legal document can have significant consequences in the VC world. This high-stakes environment makes VCs reluctant to trust automation for such crucial tasks.
  5. Legacy Processes and Resistance to Change - Many VCs rely on tried-and-true methods, including manual drafting, review, and negotiation of contracts. The inertia of legacy processes often outweighs the perceived benefits of adopting new tools.

Why Lawyers Still Use Wet Signatures for Equity Agreements

Despite advancements in technology, many lawyers continue to rely on wet signatures for equity agreements despite using electronic signatures for many other types of documents. There’s no legal, security or compliance reasons to explain it. So, why then?

This practice persists due to several factors:

  1. Tradition and Trust - The legal profession is deeply rooted in tradition, and wet signatures have long been considered the gold standard for authenticity and intent. For high-stakes agreements like equity contracts, many lawyers feel more confident with a physically signed document.
  2. Perception of Security - Wet signatures are often perceived as more secure and harder to forge than electronic ones. While modern e-signature solutions offer robust security measures, overcoming this perception remains a challenge.
  3. Limited Awareness - Although electronic signatures are legally binding in many jurisdictions, some lawyers remain unaware of the specific laws and regulations that support their use for equity agreements.

Types of Convertible Notes and Equity Agreements

In the venture capital ecosystem, convertible notes and equity agreements play pivotal roles in structuring deals. Here’s an overview of the most common types:

  1. Convertible Notessome text
    • Simple Convertible Notes: These are debt instruments that convert into equity upon a triggering event, such as a subsequent financing round. They typically include interest rates and maturity dates.
    • Capped Convertible Notes: These notes include a valuation cap, providing investors with a maximum valuation at which their investment will convert into equity.
    • Uncapped Convertible Notes: These lack a valuation cap and often have higher risk, which may result in better terms for the investor.
  2. Equity Agreementssome text
    • SAFE (Simple Agreement for Future Equity): A popular alternative to convertible notes, SAFEs are agreements that convert into equity at a future event without accruing interest or having a maturity date.
    • Preferred Stock Agreements: These provide investors with specific rights, preferences, and privileges over common stockholders, often seen in Series A and subsequent funding rounds.
    • Common Stock Agreements: Typically issued to founders and employees, common stock represents ownership but lacks the preferential rights associated with preferred stock.
    • Warrants: These are rights to purchase shares at a predetermined price within a specified timeframe, often used as sweeteners in deals.

By understanding these instruments, VCs can better structure their investments and align incentives between founders and investors.

How UnicornForms Solves These Challenges

UnicornForms is specifically designed to address the pain points VCs, family offices, angels and lawyers face when managing legal agreements. Here’s how our platform can transform the way they handle contracts:

  1. Built for Customization - Unlike generic contract automation tools, UnicornForms allows for high levels of customization with a document editor. Whether it’s creating term sheets, SAFE agreements, or bespoke side letters, our platform provides templates and workflows that can be generic or bespoke as needed.
  2. Intuitive User Experience - UnicornForms is designed with simplicity in mind. Its intuitive interface minimizes the learning curve, enabling VCs and their teams to quickly adapt and integrate the platform into their existing workflows.
  3. Time Savings - By automating repetitive tasks like data entry and template creation, UnicornForms allows VCs to focus on strategic decision-making rather than administrative overhead.
  4. Seamless Integration - UnicornForms integrates with popular tools like CRMs via Make or Zappier, ensuring a smooth transition from traditional processes to a more automated workflow.

A Vision for the Future

If every VC used UnicornForms, we could create a future where deals could be analyzed instantly and important data on trends could be shared by a team on staff without requiring an expensive outside group to spend months doing research. This gives better insights into what investments are working or failing for investors as well as helps founders better understand what VCs are looking to invest in.

The venture capital industry is built on innovation, and it’s time for its contract management processes to catch up. UnicornForms offers a modern, efficient, and reliable solution that empowers VCs to focus on what truly matters: identifying and supporting the next generation of groundbreaking companies.

Ready to revolutionize your contract management? Learn more about UnicornForms and start your journey toward smarter, faster, and more efficient deal-making today.

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