KISS (Debt Version)
For Informational Purposes Only
The Keep It Simple Security — Debt Version combines the simplicity of a SAFE with the interest accrual and maturity date of a convertible note. Originally developed by 500 Startups, updated with 2025–2026 emerging provisions.
What This Instrument Does
A KISS (Keep It Simple Security) — Debt Version is a convertible security developed by 500 Startups that combines features of a SAFE and a convertible note. Like a convertible note, the Debt KISS accrues interest and has a maturity date, giving the investor debt-holder protections. Like a SAFE, it uses standardized terms and converts into preferred stock upon a qualified financing.
The KISS converts into “Shadow Preferred” stock — shares identical to the preferred stock sold in the qualified financing, except with a liquidation preference and conversion price based on the KISS’s own conversion price (determined by the lower of the valuation cap or discount rate). This ensures KISS holders get the economics they negotiated while receiving the same governance rights as the new investors.
This template includes 9 substantive sections: definitions with key economic terms (Section 1), automatic conversion upon a qualified financing (Section 2), change of control protections with a 2x multiple (Section 3), maturity conversion mechanics controlled by a majority in interest (Section 4), most favored nation protection (Section 5), interest accrual (Section 6), company representations including OISP/DSP verification (Section 7), investor representations (Section 8), and miscellaneous provisions including QSBS compliance (Section 9).
Why Startups Use KISS Instruments
Best of Both Worlds
The Debt KISS gives investors the downside protections they want (interest accrual, maturity date, creditor status in bankruptcy) while giving founders the simplicity they need (standardized terms, no negotiating 15-page convertible note documents). It’s the pragmatic middle ground between a SAFE and a full convertible note.
Maturity Date = Accountability
Unlike a SAFE, the Debt KISS has a maturity date (typically 18 months). This creates a timeline for the company to raise a qualifying round or face conversion/repayment. Some investors prefer this accountability mechanism — it prevents companies from raising on a SAFE and then never raising a priced round, leaving investors in perpetual limbo.
Shadow Preferred Conversion
The KISS converts into “Shadow Preferred” — a separate series with the same rights as the round’s preferred stock but with a liquidation preference matching the KISS conversion price. This avoids the common problem where converting note/SAFE holders get shares with a liquidation preference based on the round price rather than their actual investment basis.
MFN Protection Built In
Section 5’s Most Favored Nation clause automatically matches any more favorable terms the company offers to later investors before the KISS converts. If the company issues a subsequent convertible instrument with a lower cap, higher discount, or better terms, the KISS holder can elect to have their terms upgraded — preventing early investors from being disadvantaged.
Key Provisions Explained
Conversion Price (Dual Mechanism)
The Conversion Price is the lesser of: (a) the round price times (1 minus the discount rate), or (b) the valuation cap divided by the fully diluted capitalization. This “lesser of” mechanic ensures the investor gets the better deal. If the company’s valuation at the next round is below the cap, the discount applies; if it’s above, the cap kicks in.
Interest Accrual (Section 6)
Simple interest accrues on the purchase amount from the effective date. Unlike a convertible note, interest is not paid in cash — it’s added to the principal (the “KISS Amount”) and converts alongside it. This means the investor’s conversion shares include compensation for the time value of money.
Change of Control (2x Multiple)
If the company is acquired before a qualified financing, the investor can choose between: (a) receiving 2x their KISS Amount in cash, or (b) converting into common stock at the cap price. The 2x multiple compensates for the risk taken and the lost upside from not reaching a priced round. The investor chooses whichever option yields a better return.
Maturity — Majority Rules (Section 4)
At maturity, the holders of a majority in interest (by principal amount) collectively decide whether to convert into common stock at the cap price or let the KISS remain outstanding as a demand note. No individual investor can force a maturity event — it requires a majority vote, protecting the company from a single investor using maturity as leverage.
Most Favored Nation (Section 5)
If the company issues any subsequent convertible instrument (KISS, SAFE, note) with better terms, this investor can elect to have their KISS amended to match those terms within 30 days of notice. This protects early bridge investors from being leapfrogged by later investors who negotiate harder.
Subordination (Section 9(a))
The KISS debt is subordinated to any senior bank credit facility, meaning banks get paid first in a liquidation scenario. This is standard for venture bridge financing — it allows the company to maintain bank relationships without the KISS creating a covenant default or priority conflict.
Emerging Provisions (2025–2026)
OISP/DSP Verification
The Company representations include an emerging provision requiring verification of whether the company is an “overseas issuer of specified products” (OISP) or a “domestic subsidiary of a prohibited entity” (DSP) under applicable sanctions and investment screening regimes. This is increasingly relevant as outbound investment screening rules expand — particularly for companies with operations in or connections to covered jurisdictions.
QSBS Compliance Covenant
Section 9(g) includes a QSBS preservation covenant requiring the company to use commercially reasonable efforts to maintain Section 1202 qualification for shares issuable upon conversion. Given that QSBS can provide up to 100% exclusion of capital gains (up to $10 million or 10x basis), this covenant protects significant investor value. The company agrees not to knowingly take actions that would disqualify converted shares.
KISS vs. SAFE Market Evolution
While SAFEs (particularly the Y Combinator post-money SAFE) have become the dominant pre-seed/seed instrument, the KISS Debt version retains relevance for bridge rounds, later-stage convertible financings, and situations where investors require debt-like protections. The interest accrual, maturity date, and creditor status make the Debt KISS more appropriate when the company has meaningful revenue or assets and investors want a backstop beyond pure equity conversion.
KISS (Debt) vs. SAFE vs. Convertible Note
| Feature | KISS (Debt) | SAFE | Convertible Note |
|---|---|---|---|
| Interest | Yes (accrues, converts) | No | Yes (accrues, converts or paid) |
| Maturity Date | Yes (typically 18 months) | No | Yes (12–24 months) |
| Debt on Balance Sheet | Yes | No (equity-like) | Yes |
| MFN Protection | Built-in (standard) | Only in MFN variant | Negotiated (not standard) |
| Converts Into | Shadow Preferred | Safe Preferred Stock | Preferred or Common (negotiated) |
| Document Length | ~10 pages (standardized) | ~5 pages (standardized) | 10–20 pages (heavily negotiated) |
How to Use This Template
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Disclaimer: This template is provided by Montague Law for informational and educational purposes only and does not constitute legal advice. The KISS was originally developed by 500 Startups. This template has been adapted and updated to reflect current market terms and emerging provisions through 2026. Key economic terms are heavily negotiated and should be tailored to each specific transaction. Use of this template does not create an attorney-client relationship. Companies and investors should consult with qualified legal counsel before entering into any convertible security arrangement. For legal assistance with your financing, contact john@montague.law.