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Many people that have cap table convertible notes do not really understand what is involved in the process. For many people, they think it is simply buying an note, writing up a promissory note, writing checks, and writing off the loan when the terms of the note are met. Others may not understand how difficult it is to sell a cap note, even for investors that do not deal in cash but rather want to purchase something like a vacation home or second home. In fact, there are several fees involved if you are going to be successful at selling the convertible note. If you find that you need someone to help you with this process then there are a few things that you should know about.First, if you do not have a cap amount that you can offer to the note holder then the entire cap amount is non-refundable. You may also have to pay out a redemption fee. It is also possible that the note may be considered a "security" on which the borrower is risking his property. You may not want to take this risk unless you have sufficient funds to cover the risk.Second, before you can write a check for the purchase of your cap note you will need to get the approval of the note holder. The purpose of this is to prevent you from paying out more money than is owed to the holder. Depending on startups of note, you may not even be able to cash out all of the money owed to the holder. You may be able to pay the outstanding balance but only at the cost of writing a check or securing a loan to do so.Next, once the note holder approves the cap amount then you can write the check to the buyer of your cap note. The check must go to the company that is actually paying for the cap amount. You will also be making payments to the broker, or mortgage broker that is handling the sale of the note. You may also be using a third party to accomplish this as well. These professionals are called "affiliates" and they will be paying for the services of the broker as well.Once the cap table note has been sold, you will then be paid the full amount of the cap price along with fees and interest. The cap price is typically much less than the total of the monthly payments on the note. In order to make a profit on the sale of the cap note, you will want to calculate the total amount of the payments you would be making if you had purchased it directly from the holder. You can find information about these payment amounts on the sales pages of many brokerage websites.One of the most important aspects of writing a cap table agreement is to set the terms of any fees that will be charged by the broker or mortgage company. These include the costs of preparing the cap table itself, including fees for attorneys. You will also want to include any other fees that would be assessed if the note was not ultimately sold. If the note holder requests a transfer of the note, it is critical that you make this known at this point.It is also important that your note be clearly explained to the note holder. You should provide them with copies of documents that will establish the note, which will also serve as legal documentation. In startups , the broker or mortgage company will not need to see these documents unless the note becomes an escrow document. If the note is an escrow document, the note holder will need a copy of the complete purchase contract between you and the buyer. This contract should be carefully reviewed by a lawyer before being presented to the buyer.In order to write a cap table convertible note, you must be familiar with the process. It is best to hire an attorney to help with this process as well as a financial advisor. Many brokers and mortgage companies have their own employees who specialize in writing these types of documents. You should contact these professionals to discuss the cap table and how they can help you.
