
Ask HN: Are these founders trying to screw their investors? - erentz
Looking for more opinions. Two years ago did a small seed with other investors I trusted. The note had the usual three conversion and repayment clauses.<p>1) Minimum discount of 25% on share conversion in the event of a Series A.<p>2) Repayment of 3x the investment if acquired before a Series A or maturity.<p>3) At maturity the holders may elect to convert at the valuation cap or the principal plus interest is due.<p>The note is maturing in less than two weeks. Elections must be made before 5 days prior.<p>None of the investors I know have been asked for their election. But the founders say they have a 50% majority to convert. They&#x27;re refusing to provide the schedule of holders, identify who has elected, or provide contact information for other holders, until Friday. But the elections must be in by Monday.<p>Are they actively trying to prevent discussions between holders? I feel they have unsophisticated investors they&#x27;ve convinced converting is in their interests.<p>They have not tried to raise a Series A for two years. They have now said they plan to raise a Series A after conversion. The company has less than a quarter of the amount owed on the notes in the bank.<p>I cannot work out how it is not in the interests of the holders to say &quot;We want our money back or alternatively we will allow you to extend the note by 6 months to do that Series A&quot;. That way our notes convert on the favorable terms.
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erentz
These are the scenarios I can think of in which we screw ourselves by
converting:

1) If Company raises more money (Series A) post maturity we don't get the
favorable conversion terms promised. (It may be very bad if the new investor
values the company at less than the cap).

2) If Company is acquired post maturity it's incredibly unlikely the purchase
price will yield more than the 3x on the note.

3) If Company goes into default after maturity, then we have better standing
for getting proceeds holding the note (debt) than shares.

