qualifying transaction

Definition

A financing or exit event that triggers specific contractual provisions in a term sheet, such as conversion of convertible notes or acceleration of vesting. The legal trip-wire that determines when various startup agreements activate.

Example Usage

Our convertible notes automatically convert upon any qualifying transaction of $5M or more at a 20% discount to the round price.

Origin

Securities law and venture capital documentation terminology

Fun Fact

Poorly defined qualifying transactions can create unintended consequences, like bridge notes converting in ways that disadvantage new investors.

Source: Venture capital term sheets and convertible securities documentation

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