Comparing Equity, Debt And Convertibles For Startup Financings. Financing Options: Convertible Debt. MBA Mondays are back after a one week hiatus.
Today we are going to talk about convertible debt. Convertible debt can also be called convertible loans or convertible notes. For the purposes of this post, these three terms will be interchangeable. Convertible debt is when a company borrows money from an investor or a group of investors and the intention of both the investors and the company is to convert the debt to equity at some later date. Typically the way the debt will be converted into equity is specified at the time the loan is made. There are a number of reasons why the investors and/or the company would prefer to issue debt instead of equity and convert the debt to equity at a later date. For investors, the preference for debt vs equity is less clear. Friends and family rounds, which we discussed earlier in this series, are often done via convertible debt. The Big Problem Equity Crowdfunding Platforms Face. Equity crowdfunding platforms encounter several challenges. The SEC knows this better than most, but there are more than just regulations standing in the way of this industry.
While investors and project creators must tread carefully when raising capital, the many portals online face several obstacles of their own. Once such challenge has been called the “Due Diligence Dilemma.” In the US, most equity crowdfunding platforms have a very low project acceptance rate — anywhere from 1-5% — meaning that portals must perform a substantial amount of due diligence in order to approve only a handful of applicants per few hundred. While this, in itself, poses a great amount of work, the real trouble may lie in the illusion of safety that results. Portals with very low acceptance rates appear as the smarter investment compared to those with lenient filters. Since reputation plays such an important part in a portal’s success, attracting investors who will put these worries to rest is paramount.
Term Sheet Generator (Convertible Notes), TSG, Convertible Notes, Convertible Note Generator - Wilson Sonsini Goodrich & Rosati. This tool will generate a convertible note term sheet based on your responses to an online questionnaire.
It also has an educational component, with basic tutorials and annotations. This term sheet generator is a modified version of a tool that we use internally, which comprises one part of a suite of document automation tools that we use to generate start-up and venture financing-related documents. Because it has been designed to account for a number of options, this version of the term sheet generator is fairly expansive and includes more detail than would likely be found in a customized application. Please direct any general questions regarding the term sheet generator to Tony Kikuta (akikuta@wsgr.com) or Yokum Taku (ytaku@wsgr.com) at (650) 493-9300. For technical issues, please contact the WSGR Help Desk at By using the WSGR Term Sheet Generator (Convertible Notes), you agree to the Terms and Conditions below.
No Attorney-Client Relationship Privacy Matters Compliance with Laws. Launches Convertible Note Term Sheet Generator - Wilson Sonsini Goodrich & Rosati. In the technology start-up context, convertible note financings typically are designed to raise funds sufficient to meet a company's short-term financial needs until it can complete a more formal round of equity financing, or to bridge the company to some other significant event.
Its name derives from the fact that these financings usually involve the issuance of notes that are convertible into the securities issued in the next major equity financing by the company. Because start-ups may not have the cash flow to repay the notes, it is often intended that the notes will be converted into equity instead of being repaid. Many early-stage companies, in particular, will try to raise seed money this way because a convertible note financing typically can be completed more quickly than a more formal equity investment by venture funds.
CEO Update to Shareholders Template. This CEO Update template is the results of collaboration with several local angel investors and entrepreneurs.
If you have some suggestions on how this could be improved further, please add a comment. This is the CEO Update to Shareholders for [full company name] for [the month]. Dashboard (legend) Good metrics to graph include EBITDA, Revenue, Number of New Customers, etc. Each of item below should consist of one to two paragraphs. Highlights and Red Flags. One Page Term Sheet for Angel Investors - Basil Peters. This is not a theory or academic exercise.
This term sheet is in actual use today by angel funds in BC. This term sheet is based on exchangeable shares. This simplified term sheet is based on the underlying assumption that an effective, independent board is in place and that the board will make the best decisions for all shareholders. It also assumes the company is built on a fair and equitable structure. This Term Sheet has been prepared for angel investments made at an early stage by "the Angel Fund". Offer of Investment The Fund will purchase, together with any syndicated investors, (collectively the "Investors"), common shares (the "Shares") at a price of $* per Share. Board of Directors The Fund believes that early stage investments need strong mentoring and governance provided by a high quality, engaged Board. Share and Option Vesting. Have a Look at a Map of Private Equity in Africa! Scribd. Is Convertible Debt Preferable to Equity?
Seth Levine of Foundry Group addresses this important topic this morning on his blog with a post, “Has Convertible Debt Won?”
Seth was basing this on a Tweet by Paul Graham that said” “Convertible notes have won. Every investment so far in this YC batch (and there have been a lot) has been done on a convertible note.” I have to say that I didn’t take the question to mean that convertible debt had won for the entire market, but either way it’s clear that convertible debt has become an increasing trend.
I’ve written about the topic of convertible debt at length before specifically about how angels & entrepreneurs should think about pricing. Hybrid Equity and Mezzanine Finance"