Convertible Debt vs Equity Financing

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Equity or convertible debt or convertible loan that way you whatever disadvantages and myths about convertible loans and give my opinion convertible debt we use it for our company so i have first-hand experience in the netherlands for the uk thinks about convertible debt and i will show that i just read an article from one of my favorite bloggers she’s a girl part of the

Comments she received from one of the readers and she listed pros and cons probably but overall she was quite positive a companies that didn’t raise before so for you know the first capital get so today wanna kind of work through the things she listed and offer my opinion she listed there were two that really caught my eye and the first is the convertible debt is quick

And immediate why because you do not need the approval contract the investor signs a contract and good way to cash in and in most cases at a round so they’re just issued as the time goes by right so you can go an investor with a convertible debt by and you can get the cash in tomorrow find that one invested that just takes that once a leap of faith initially we that your

Company needs more than what is willing to invest right so in my debt like without being part of a round because anyway there is a very high-risk need much more than what they are offering right so and this everyday most investors will not invest unless everybody else commit and you risk your sense than to issue convertible debt the other he aspect of convertible debt

Issuing a a contract that does not need template and you agree on the terms you know like you’re just like a capital security involved which is under the underlying stops but you’re not issuing absolutely true unless you already have shareholders the so it’s the company is probably need the approval of the rest of the shareholders to issue a security because company right

Being a hybrid kind of security because it convert you do need that can be expensive because that may need approval mentioned in the previous example the way a convertible debt was is that it’s a very very quick tool to support and facilitate what is they was want to know be in they don’t think it through and this is a very good way to you know what the evaluation blah

Blah blah lawyers so it can be like a good gut feeling says that this is more like a feature of the american culture and it immediate and as instinctive as in america on online platforms there are platforms will be a scenario very similar to what you can read about in the state but when but when it’s offline my experience says it is not as instinctive as convertible that

Can be and therefore there is no incentive to use it now let came you can encounter by issuing convertible debt and the first of all is while in the states they started to pick up in 2009-2010 when y combinator so you may have investors are not familiar with that or they’re not really are able to to offer to offer you that and i have some very good experiences also here

In the netherlands of very renomated legal firms that that were not liucky maybe but i do know that is not as common as it may be or common outside europe the other the other aspect that is quite important to video and when you convert it may have some terrible effects and a terrible what this all do is kind of making it difficult for you as a founder but also next funding

Round and that is going to be a valuation and that point triggers all the convertible debt and the convertible well be the case that can’t be in the investors that stepped in larger stake they initially expected or even large compared the stake that can also create i some comes from conflicts you know some difficulties comfortable comfortable with the conversion terms right

It’s true that the company going to work around that but still it can make things slower and they convert and you’re gonna have an enterprise around are going to be simply you’re now gonna kind of pay the consequences if you want and again the difficulties so you know it’s something that may give you know make could make could be one of the complications next to the legal

Costs that i read it says that investors that buy in to convertible that may feel instinctive right so it was quick and they don’t they didn’t like sweat their negotiation again really maybe our have to talk to them that much like it had a little some for the budget so if you are early stage company investor that really believs in what you’re doing because you’re going to

Go cases they go for the better and i mean this is what we all hope for but in and as much as you have your co-founders you also your angel group of angels so maybe sometime sometimes the the wait is consider for your own company because in the end of the come probably till exit make sure you also part of this video want to talk about are the myth about convertible debt

That of negotiating violation at such an early states and i am to say that so convertible debt comes with a cap if it’s a contract and you can decide all of the terms if it doesn’t come with a cap then we’re talking about full leap of faith will convert you know at the next price round at whatever invested a little sum of money today and in two years time you raised capital

With a vc firm investors that believed in you in the early days right and it’s not even your why i’m talking about full investors on the other hand so if you do that those group of investors or the that point that for your company right give you some slack of time for you to valuation i’m willing to pay right so and what i’m saying is if they’re willing to think about

The maximum price round right so i’m not just saying this because it is in the interest of why people would try to get to you know run away from negotiating the valuation to get the feeling of the other person if you can negotiate hard with a person relationship you know that happens also on you know very openly with your colleagues then you know you’re costs avoid like to

Discuss about capital and money because we all are in not do a price round and the bottom line about my own discussion is your mind is not these are like a magic wand is not that you’re gonna forget about it can actually backfire when they’re going to convert at a cap plus the a convertible debt and what it would imply on your cap table you can use the the description of the

Video where you can also see you can see a what will can see down below when you scroll down you can see the most used terms based on it was fun for us doing it and i would hope this helps you guys if you have any comment feel free to share in this case comfortable with whatever suits your case just keep in mind that they’re going to be things to talk about what do investors so just be ready for

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Convertible Debt vs Equity Financing By Equidam