DISCOVER THE STACK NOTE™
Founder One-Pager — The STACK Note (Cash-First, Lead-Backed, Founder-Friendly)
What you get, day one
Committed Lead: M1 leads your round by default—no “hunt for a lead.”
Cash In: Investment designed so you can deploy capital into the business.
Predictable Dilution: We cap our ownership at 5% post-money.
Fair Pricing: Converts at your round price (with a protective discount), anchored to your advisory valuation ratified at close.
Follow-On Support: We reserve the right to participate through IPO—long-term partner, not a one-and-done cheque.
Buyback Path: After 3 years you can buy back our shares at fair market value.
Professionalize to Scale: We help you set up a real Board and a 10% ESOP before close; board seat is by agreement and depends on round dynamics.
Milestone Rewards: Hit agreed milestones and our stake steps down automatically (e.g., 5% → 4%).
Operational Velocity: A quick-consent lane for routine approvals—no bottlenecks.
Employee Ownership Protected: Clear ESOP refresh rules so future top-ups are fair.
Clean Cap Table: Company uses Carta for cap table accuracy from day one.
Small Founder Liquidity: At Series A, a small secondary (up to 5% of founder holdings) may be permitted (Board consent) to keep you focused on growth.
Why this is better for you than a SAFE or a Convertible Note
Capped & predictable (max 5%) vs. variable or uncapped dilution.
Lead secured upfront vs. “find a lead first” uncertainty.
More ways to win: milestone step-downs, buyback after 3 years, founder-elected upsize, small secondary.
Institutional where it matters, simple where it counts: maturity, MFN, anti-dilution, pro-rata to IPO, and clear option-pool treatment—without heavy governance.
DRAFT STACK NOTE AGREEMENT
Effective Date: [●]
This STACK Note Agreement (“Agreement”) is entered into by and between [M1 Fund, L.P.], a Delaware limited partnership, acting through its general partner [M1 GP, LLC] (“Investor”), and [Startup Name], a [Jurisdiction] corporation with its principal place of business at [Address] (“Company”).
1. Purpose
This Agreement evidences the Company’s issuance of a STACK Note (the “Note”), a structured, non-cash-interest, convertible security designed to provide immediate growth capital with predictable dilution and long-term investor alignment.
2. Investment Amount; Min/Max; Use of Proceeds
2.1 Amount. Investor commits between US$50,000 (minimum) and US$1,000,000 (maximum) (the “Investment Amount”).
2.2 Use of Proceeds. The Investment Amount may be applied to general fees and costs associated with capital formation and company growth, and the balance (if any) shall be disbursed to the Company as working capital.
2.3 No Prepayment. The Note may not be prepaid, repaid, or redeemed prior to conversion or maturity without Investor’s written consent.
3. Conditions Precedent
Effectiveness requires (a) execution of the Company’s Grant Agreement and delivery of the Advisory Pack (valuation and supporting materials) as Annexure A, and (b) agreement on a closing timeline consistent with the intended financing.
4. Lead Investor Status; Raise Partners
4.1 Lead by Default. Investor is the lead by default on the Company’s next equity financing. If a reputable third-party lead is already in place, Investor may elect to follow that lead’s negotiated terms for closing mechanics and pricing.
4.2 Approved Partners. Investor may coordinate transaction execution through Maxnx or any other firm vetted and approved as a partner of M1; such support is supplemental and non-exclusive.
5. Key Definitions; Post-Money, ESOP, Carta
5.1 Post-Money Basis. “Post-Money” means immediately after the relevant financing, including all SAFEs/convertibles that convert in such financing and the pre-agreed ESOP/pool increase, but excluding any subsequent increases.
5.2 Fully Diluted Capitalization. Includes all outstanding or issuable equity, options, warrants, and convertibles, calculated on a Post-Money basis.
5.3 Advisory Valuation. The valuation in the Advisory Pack (Annexure A) that is ratified at the close of the Qualified Financing.
5.4 ESOP Minimum. The Company shall have a minimum ESOP of 10% fully established before the Qualified Financing closes.
5.5 Cap Table Platform. The Company shall maintain its official capitalization records on Carta from the Effective Date and throughout the term of this Agreement.
6. Conversion Mechanics
6.1 Qualified Financing (Automatic). Upon closing an equity financing raising ≥ US$500,000 from professional investors (the “Qualified Financing”), the Note automatically converts into the same class of equity issued in such financing at the lower of:
(a) the price per share implied by the Advisory Valuation (as ratified at close); or
(b) a 20% discount to the price per share paid by new-money investors.
6.2 Non-Qualified Equity Financing (Optional). If the Company raises < US$500,000, Investor may elect to convert on the same security at the lower of (a) Advisory Valuation (Board-ratified at such closing) or (b) a 20% discount to that round’s price.
6.3 Liquidity Event Prior to Conversion. Before conversion, upon a Change of Control or IPO, the Note automatically converts at the Advisory Valuation less 20%; alternatively, at Investor’s election, the Company shall repay principal plus accrued PIK interest.
6.4 Maturity. If neither a Qualified Financing nor a Liquidity Event occurs by the 36-month anniversary of the Effective Date, Investor may elect (i) conversion at the most recent independent valuation (or Board-approved internal valuation), or (ii) extend the Note.
7. Non-Cash (PIK) Interest
From the Effective Date until conversion/repayment, the Note accrues 5.0% per annum pay-in-kind interest (“PIK Interest”), compounded annually; PIK Interest converts into the same security and at the same price as principal. No cash interest is payable prior to conversion/repayment.
8. 5% Equity Cap (Post-Money); Founder-Elected Upsize Facility
8.1 Hard Cap. Notwithstanding anything to the contrary, Investor’s aggregate ownership resulting from conversion of this Note shall not exceed 5.0% of the Company’s fully diluted Post-Money capitalization (which includes the pre-agreed 10% ESOP).
8.2 Optional Upsize (Founder-Elected). At any time after the Qualified Financing—and only at the Company’s election with Board approval—the Company may raise additional capital from Investor via a separate top-up note for up to an additional 2.0% ownership maximum, on substantially similar terms, with an automatic step-down of 0.5–1.0% if specified milestones are met within 12 months. The default remains the 5% cap unless the Company affirmatively elects the upsize.
9. Pro-Rata Rights (Through IPO)
Investor has the right, but not the obligation, to purchase up to its pro-rata share of any New Securities in all subsequent equity financings from Series A through IPO, subject to customary exclusions (employee equity, strategic issuances, acquisition consideration, etc.).
10. MFN and Anti-Dilution
10.1 MFN. If, prior to conversion or maturity, the Company issues any convertible (SAFE, note or similar) on more favourable economic terms, Investor may elect to amend this Note to adopt such terms (without altering the 5% cap, except via Section 8.2 if elected by the Company).
10.2 Anti-Dilution. Upon conversion, Investor receives broad-based weighted-average anti-dilution protection for down-rounds until the earlier of IPO or Change of Control.
11. Governance; Board and Advisory Support
11.1 Board Formation and Seat. If the Company does not have a formal Board, it shall establish one prior to the Qualified Financing close. Investor may take a board seat (or designate a qualified nominee) by agreement, dependent on round dynamics.
11.2 Advisory Role. Investor (or its designated partner) may provide strategic advisory support post-close under an agreed scope.
11.3 Observer. As an alternative, Investor may designate one non-voting board observer (customary confidentiality and exclusion rights).
12. Transfer; Liquidity; Company Buyback Right
12.1 Transfer. Investor may transfer this Note and, post-conversion, its equity to affiliates/SPVs upon notice; transfers to third parties are permitted after the 3rd anniversary, subject to securities laws and standard transfer restrictions.
12.2 Piggyback Registration. In connection with an IPO, Investor shall be entitled to piggyback registration rights on customary terms.
12.3 Company Buyback Right (After 3 Years). Beginning on the 3rd anniversary of the Effective Date (or, if later, of conversion), the Company may repurchase Investor’s shares (in whole or in part) at Fair Market Value (“FMV”). FMV will be determined by (i) a mutually agreed independent valuation firm; or (ii) if none agreed within 10 business days, the median of two independent valuations (each party appoints one); if the two are >10% apart, a third valuation is appointed and FMV is the median of all three. The Company has a Right of First Offer (ROFO) on any proposed third-party transfer by Investor after year three (20 business-day exercise window).
13. ESOP & Refresh Rules
13.1 ESOP Minimum. A 10% ESOP must be in place before closing the Qualified Financing.
13.2 ESOP Refresh. Post-Financing ESOP increases shall be structured so that (i) refreshes are sized to hiring plans and (ii) dilution is shared fairly across stockholders; any refresh >5% in a single event requires Board approval including Investor consent (not to be unreasonably withheld).
14. Company Covenants; Quick-Consent Lane
14.1 Use of Funds. Legitimate business purposes; no personal use or dividends.
14.2 Founders. Full-time commitment; annual cash compensation > US$150,000 requires Investor consent (not to be unreasonably withheld).
14.3 Debt/Distributions. No material indebtedness or distributions while the Note is outstanding without Investor consent.
14.4 Reporting. Monthly updates, quarterly cap tables (via Carta), and annual reviewed/audited financial statements.
14.5 Quick-Consent Lane. For routine operational approvals (vendor contracts under [●], budget reallocations under [●]%, standard IP assignments, option grants within plan limits), Investor will respond within 3 business days; lack of response is deemed consent after 5 business days unless expressly withheld.
15. Events of Default; Remedies
15.1 Events of Default.
(a) Material breach of this Agreement (including failure to deliver shares upon conversion);
(b) Breach of covenants in Sections 11–14 or material breach of Annexures;
(c) Material misrepresentation;
(d) Insolvency/bankruptcy; assignment for benefit of creditors;
(e) Unauthorized issuances or transfers that circumvent Sections 9–10 or 12;
(f) Abandonment or illegality of principal business;
(g) Failure to provide required reports within 15 business days after written notice;
(h) Unplanned departure of CEO without a Board-approved replacement within 60 days.
15.2 Remedies. Upon default, Investor may (i) accelerate conversion at the Advisory Valuation less 20%, (ii) demand repayment of the Investment Amount plus accrued PIK Interest, and/or (iii) exercise all other rights and remedies at law or equity.
16. Ranking; Subordination
The Note ranks pari passu with other convertibles unless otherwise agreed, senior to common equity, and junior to secured creditors.
17. Miscellaneous
17.1 MFN Notices; Pricing Dispute. Company shall give at least 5 business days’ notice before issuing any more-favourable convertible; any pricing dispute between Advisory Valuation and lead terms shall be resolved by Board + Investor approval (not unreasonably withheld).
17.2 Governing Law; Disputes. Delaware law; binding AAA arbitration in Wilmington, Delaware.
17.3 Entire Agreement; Amendments; Counterparts; E-Sign; No Waiver; Survival. This Agreement (with Annexures A–C) is the entire agreement; amendments in signed writing only; electronic/counterpart execution permitted; no waiver except in writing; Sections 2–17 survive conversion or termination.
Signatures
Investor: ____________________ Date: ________
Company: ____________________ Date: ________
Annexures to form part of this Stack Note™ file after completion:
ANNEXURE A [To be created after the grant is deployed]
Grant Agreement + Advisory Pack (valuation, deck, memo, diligence, reporting cadence)
ANNEXURE B [If Offered after file review by Maxnx - Please refer to clause 14 of the grant agreement]
Fundraising / IR Service Agreement (Maxnx or any M1-approved partner)
ANNEXURE C — TERM SHEET [A shortened version of the exact terms of this Stack Note ™ If offered by the M1 funds]