

Angel investors increasingly making convertible loans rather than taking equity - daviday
http://www.ft.com/cms/s/2/01630196-b545-11df-9af8-00144feabdc0.html?ftcamp=rss

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SriniK
When 'pg' tweeted other day about all deals being convertible notes, I
researched a bit about them. Following is my notes on em.

Convertible notes make a lot of sense for both Angels and Founders as both are
taking risks. If a startup ever makes it big, founders have benefit as angels
are being discounted. If a startup doesn't make it, at least angels get the
power and they can act according to the prior agreed conditions. For angels,
tax advantages are also worth considering. Again, all the benefits depend on
the fine details.

Venturehacks has nice article. <http://venturehacks.com/articles/debt-or-
equity> Summary is that, it is better to raise convertible debt for small
amounts and it is better to go for the equity if bigger amounts are needed.

There is an awesome write up by Yokum here
[http://www.startupcompanylawyer.com/category/convertible-
not...](http://www.startupcompanylawyer.com/category/convertible-note-bridge-
financing/)

There are many types <http://en.wikipedia.org/wiki/Convertible_bond#Types>

I think it is safe to assume that a seasoned angel/vc won't screw founders -
it only gets them bad reputation. That said, it is everyone's responsibility
to know/read what they are getting into before signing.

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amirmc
_"Investors who put up the early “seed” capital for technology start-ups in
the US have come up with a novel idea for how to value businesses that in most
cases have not started trading: put the issue off until later"_

I thought the move towards convertible notes was primarily being driven by the
startups/founders rather than the investors.

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jimboyoungblood
The standard rationale for doing a note is that they're simpler and therefore
cheaper to do, which in theory helps both founders and investors (unless
anyone thinks its a good idea to blow startup capital on lawyers).

This article was pretty much the most clueless thing I've ever seen written
about convertible note financing. Better to just forget you ever saw it.

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ryanjmo
Maybe someone can help me out here, with something I don't understand.

What happens to the convertible note if you never go on to raise another
round, but you still have a successful business that generates a lot of cash
for yourself?

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aditya
Depends on the terms - it could convert to equity, get paid back, or have it's
maturity date extended...

More here: [http://www.startupcompanylawyer.com/2007/04/29/what-
happens-...](http://www.startupcompanylawyer.com/2007/04/29/what-happens-to-
the-convertible-promissory-note-if-the-maturity-date-is-reached-and-there-
hasnt-been-a-financing/)

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kljensen
Are convertible notes new? Seemed common 10 years ago even.

