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What is convertible equity (or a convertible security)?

Startup Company Lawyer

Quick answer: convertible equity (or a convertible security) is convertible debt without the repayment feature at maturity or interest. Over the past few years, convertible debt has emerged as a quick and inexpensive method for startup companies to raise money from angel investors and early stage venture funds.

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The Legal Side of Entrepreneurship

YoungUpstarts

They also need to decide whether to structure terms as an equity deal or a convertible security deal. “If you’re going to raise $1 million, my advice is to propose a convertible security, because you can get it done quickly and less expensively,” said Schmitz. Convertible Securities.

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A primer on convertible notes, convertible securities, and equity

Hippoland

However, convertible notes had a special kicker unlike regular debt. Convertible notes allowed investors to have the option of converting the money into stock at the next priced round – investors essentially had the option to get their money back + interest OR receive stock when the company did the next priced round.

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Convertible Debt: Worst Form Of Seed Financing — Except For All The Others

Gust

I won’t rehash all of the customary convertible note financing deal terms and points of negotiation here. (For Like any promissory note, it bears interest (usually at a nominal rate) and has a maturity date on which the loan must be repaid if it hasn’t been converted to stock (typically around 18 months).

Finance 134
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Raising Startup Capital Through Convertible Debt Financing

Business Plan Blog

In addition to convertible debt, other methods can be used to pay back FFF such as: 1) Fixed repayment schedules tied to company’s future cash flow(s). 3) Giving non-voting stock. It gives in depth examples & templates explaining documents like Term Sheet, Cap Table, Convertible Securities plus the importance of 83(b) filing.

Finance 93
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Knowledge Is Power: Convertible Note Financing Terms, Part II

Gust

This may seem like a no-brainer now that you understand the basic structure of a convertible debt financing. At least one well-known Silicon Valley venture accelerator is using a document referred to as a “ convertible security ” rather than “convertible promissory note.”

Finance 79
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Cap Tables Explained: Guide to Understanding Cap Tables

Board Effect

Over time, a company might issue new shares of capital stock or buy back shares of existing stock. Companies may even broaden the range of securities offered, as they would by offering options or grants. Securities can be broken up across multiple columns based on the company’s share structure. the number of shares owned.