The STACK Note™ Handbook
Structured Terms for Aligned Capital Kicker (STACK) — A Guide for Moonshotnx Founders
1. What Is a STACK Note?
The STACK Note (Structured Terms for Aligned Capital Kicker) is a founder-aligned investment instrument designed to provide follow-on funding after a grant is received. Issued by the regional M1 Funds, the STACK Note gives early-stage startups the capital they need to convert traction into investment without sacrificing control or ownership prematurely.
It is not a loan, not a convertible note, and does not charge annual interest. Instead, it gives investors the right to receive equity in your next priced round under pre-agreed terms.
2. Why the STACK Note Exists
The STACK Note was created to:
Enable founders to access capital quickly after receiving non-dilutive grants
Bridge the funding gap between early traction and priced equity rounds
Provide investor-aligned terms without legal friction or negotiation overhead
Replace outdated SAFE structures with a clearer, scalable capital mechanism
Integrate into the broader Moonshotnx Capital Stack system while remaining administratively independent under the M1 Funds
3. How the STACK Note Works
The STACK Note vs. a SAFE vs. a Convertible Note
A founder’s guide to what changes for you (and why it’s better)
a) What each instrument actually is
SAFE (post-money) – a simple agreement that converts into shares at your next priced round. No interest. No maturity date. Super fast to sign, but terms can be vague about total dilution if you stack multiple SAFEs or expand the option pool.
Convertible Note – a loan that converts into shares later. Usually has interest (5–8%), a maturity date (12–24 months), and default provisions. More protective for investors; heavier than a SAFE.
STACK Note – a hybrid built to be as quick as a SAFE, but with better founder protections, clearer dilution, and a built-in, long-term partner (M1). It converts at your next round, but also adds: a hard max 5% post-money cap, a committed lead by default, clear ESOP rules, and a 3-year buyback path for you.
b) What founders care about (side-by-side)
c) How dilution really plays out (quick scenarios)
with a SAFE:
you sign two or three SAFEs before a priced round. each has its own cap/discount. you later expand the option pool to hire. result: the true dilution isn’t obvious until the round closes, and it’s often higher than expected.
with a convertible note:
like a SAFE, but interest accrues; at conversion, you give up extra shares to cover that accrued interest. if the note hits maturity without a round, you may face pressure to renegotiate, repay, or convert at a suboptimal valuation.
with the STACK Note:
our total ownership after conversion is hard-capped at 5% post-money (including the pre-agreed 10% ESOP in the math). you get predictability. no surprise stack-on dilution, and you keep the upside.
d) Cash, control, and cadence
cash:
we structure the investment so you can deploy money into the business. there’s no “dead dilution” for funds that just boomerang back into setup costs; you see and plan for the balance that lands in your bank.
control/governance:
we help you professionalize: form a board and set up a proper 10% ESOP before close. we may take a board seat (by agreement, round-dependent) or simply be an observer—your call.
our quick-consent lane avoids day-to-day bottlenecks. routine items auto-approve if we don’t respond quickly.
cadence:
Carta is mandated for cap table clarity. you’ll send simple, regular updates (monthly highlights, quarterly cap table, annual financials) so future investors see a clean, credible story.
e) Founder advantages unique to the STACK Note
committed lead, day one
no “who’s leading?” scramble. if you already have a reputable lead, we’ll follow their price mechanics.5% max cap = no nasty surprises
fixed, post-money, with the ESOP defined up front. you always know the worst-case dilution.buyback after 3 years
you can repurchase our shares at fair market value (independent valuation method). that’s rare—and founder-friendly.milestone step-downs
hit agreed KPIs and our stake ratchets down (e.g., from 5% to 4%). you’re rewarded for execution.pro-rata through IPO
a supportive, aligned investor who can continue backing you—makes future rounds easier.flexibility if you want more
founder-elected upsize (≤2%) later—only if you ask for it, with automatic step-downs if you keep crushing it.clean operations
Carta cap table. clear ESOP refresh rules. a quick-consent lane so you can move fast without governance drag.
f) When would a SAFE or convertible still make sense?
SAFE: you need a signature today, you have a well-defined lead incoming, and you are comfortable that dilution could drift with multiple SAFEs and pool changes. brand-name angels insist on their own SAFE template.
Convertible Note: a specific investor requires note-style protections (interest, maturity) and you’re fine with the extra complexity and potential default pressure.
otherwise: the STACK Note gives you speed + predictability + a long-term partner—without the hidden dilution or negotiation fatigue.
g) Short FAQ
Q: do i lose control by giving a board seat?
A: no. it’s by agreement and depends on round dynamics. we can also take an observer role. the point is to help you raise and scale, not to control operations.
Q: what exactly is the 10% ESOP for?
A: hiring and retaining great people. setting it before the round avoids last-minute dilution shocks and is what most top-tier leads require anyway.
Q: what if my round is smaller than $500k?
A: the STACK Note lets us optionally convert even on smaller rounds, so you aren’t stuck in limbo.
Q: can i buy you out later?
A: yes—after 3 years you can repurchase our shares at FMV using a straightforward independent valuation process.
h) The bottom line
SAFE: fast, simple, but dilution can creep and there’s no built-in lead.
Convertible: adds investor protections but also interest, maturity, and default pressure.
STACK Note: fast + predictable + founder-protective — committed lead, 5% max cap, buyback path, pro-rata through IPO, fair ESOP rules, clean cap table, milestone step-downs, and optional upsize only if you want it.
if you want this in a branded PDF/Word layout for founders (with your colours and logo), say the word and I’ll drop it into a clean, send-ready template.
4. Funding
The STACK Note is deployed as a follow-on investment after the $50,000 Moonbase Grant. It is administered by the regional M1 Fund investment team.
Access is governed by the Capital Council, the investment approval body that oversees allocation decisions. Approval to present to the Capital Council is granted by the Maxnx advisory team, once the startup is assessed as “investor ready”.
This investor readiness assessment includes pitch material quality, data room readiness, founder performance, traction, and strategic clarity.
5. STACK Note Lifecycle
Receive $50,000 Moonbase Grant
Complete onboarding and Maxnx advisory support
Become “investor ready” as assessed by Maxnx
Approved by Capital Council for STACK Note
STACK Note issued by M1 Fund
Maxnx continues support to raise remaining round
Raise priced round (Seed or Series A)
STACK Note converts into equity
5. What Happens After the STACK Note Is Received
After you receive the STACK Note funding:
You are formally onboarded as a portfolio company of the issuing regional M1 Fund
You continue to work with Maxnx to raise additional capital and close the rest of your round
You receive access to investor introductions, platform support, and fundraising logistics
You remain on the capital stack pathway for potential follow-on investment
6. Legal Documentation
When you’re approved for a STACK Note, you will receive:
A STACK Note Agreement from the issuing M1 Fund, for founder consideration and acceptance
A clear founder explainer describing your obligations and conversion mechanics
Any required support to update your cap table or entity structure
All documents are standardized for clarity and speed, but founders are encouraged to have legal counsel review them independently if desired.
7. Final Notes
The STACK Note is a critical component of your capital journey. It provides the right capital at the right time—without unnecessary dilution, pressure, or complexity. It was built to give founders leverage, not extract it.
It exists to help you grow, raise with confidence, and close with power. Maxnx and the M1 Fund teams are here to support every stage of that journey.
