

What is convertible equity (or a convertible security)? - yokumtaku
http://www.startupcompanylawyer.com/2012/08/31/what-is-convertible-equity-or-a-convertible-security/

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papercrane
So its just a mandatory convertible zero interest bond? Why is it called
convertible equity?

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lucasgonze
Because you redeem it for equity at a rate defined in the next round but
within the cap and discount parameters.

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papercrane
Wouldn't a mandatory convertible be converted at the current valuation as well
though? Forgive me if I'm being obtuse, my experience is with convertible
bonds that are backed by publicly traded equities, not private equities.

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001sky
There is a legal delta between debt and equity as contract classes. What this
post is describing is a 'bastardization' of these classes. The net result, is
ultimately, an equity contract. It is a "weakened" or "attenuated" option to a
convertible note (already, an attenuated alternative to convertible preferred
stock). Maybe the OP or PG will chime in with more color.

here is the relevant bits, at least in part

 _3\. Convertible equity is “equity” and probably can be characterized as
qualified small business stock, which may have a tax benefit for investors.

4\. Convertible debt with a maturity date longer than one year creates
problems for California-based investors due to licensing requirements under
the California Finance Lenders Law. Making it equity removes this issue._

