Founder’s Pocket Guide: Convertible Debt
This easy-to-follow guide helps startup founders understand the key moving parts of the convertible debt funding structure. It also serves as an easy reference for the most common terms and calculations related to convertible debt.
In detail, this Founder’s Pocket Guide helps startup founders learn:
- What convertible debt is and how it can be an important fundraising structure.
- Key terms and definitions associated with convertible debt, such as conversion triggers, valuation caps, and conversion discounts.
- Key advantages and disadvantages of using convertible debt as a funding structure.
- How investors view the convertible debt, and what their expectations are for early-stage investment deals.
- Simple math for calculating the impact of conversion discount rates and resulting equity ownership on conversion.
- How convertible debt benefits both founders and investors alike, illustrated by example convertible debt deals.
Table of Contents
1. Convertible Debt Fundamentals
- What Is Convertible Debt?
- Funding Your Startup with Convertible Debt
- Startup Funding Terminology
- What Convertible Debt Implies
- When To Use Convertible Debt
- Advantages of Convertible Debt
- Disadvantages of Convertible Debt
- Why Delaying Valuation is a Good Idea
- How Much to Raise Using Convertible Notes
- Milestones Supported by Convertible Debt
2. Key Moving Parts of a Convertible Note
- The Note Amount
- Interest Rate
- Maturity Date
- Conversion Triggers
- Conversion Securities
- Discount Rate
- Valuation Cap
- Conversion Discount and Valuation Cap
3. Dealing with Convertible Debt Timing Issues
- Issue 1: Maturity Reached, No Equity Round
- Issue 2: Early Acquisition of the Startup
4. Using Convertible Debt for Your Startup
- Raising Funds, Step by Step
- What Happens When a Note Converts
- Convertible Note Term Sheet Deal Points
- Convertible Debt Cautions and Pitfalls
What People are Saying
“Practical outline on convertible notes”
“Quick informative read”
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