Top 5 things to consider before getting convertible debt

The intricacies of convertible debt can seem overwhelming to first-timers, but understanding the fundamentals of convertible debt structure is essential to making the right choice for your company. Here are the top five things to keep in mind when you're considering convertible debt.

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Why is convertible debt so popular for early-stage startups?

Getting financing for your tech startup during the early, pre-revenue stages is always a challenge. That’s why, for the past decade or more, many entrepreneurs have been turning to convertible debt rounds with angel investors to get by until they gain revenue and traction.

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Why are you giving convertible debt investors full ratchet anti-dilution rights?

Last week, we covered one little-known problem with convertible debt—unpriced multiple liquidation preferences. Here we’ll look at another hidden pitfall of convertible debt—the fact you’re giving investors full ratchet anti-dilution rights, which burns founders in a down round.

Here are some key things to understand a full ratchet and inadvertently giving away too much of your company to early investors.

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Multiple liquidation preference and the hidden trap of convertible debt

Many early-stage startups are raising money from angel investors through convertible debt—it’s easy and well-understood, right?

Well, mostly.

There are a couple problems with convertible debt that have emerged as it has become the funding method of choice (it wasn’t always the security-de-jour). So we wanted make entrepreneurs aware of perhaps the most hidden and misunderstood issue: multiple liquidation preferences.Read more


Five debt funding options for your SaaS company

For founders, SaaS means opportunity. The SaaS market is exploding. Analysts project that the global SaaS enterprise application market will grow from a $22.6 billion market in 2013 to $50.8 billion in 2018.

For investors, SaaS means security. One of the most appealing features of SaaS startups is their sticky revenue streams, which make them less risky investments. SaaS companies often start generating revenue and profitability much earlier compared to startups in other tech categories. And thanks to their software focus, many are able to bootstrap for a long time to gain early traction.

However, bootstrapping will only get you so far. At some point, putting off fundraising means limiting your growth. So how can SaaS businesses take their companies to the next level? What funding options are out there?Read more


What you need to know about convertible equity

We field a lot of founder questions on convertible equity. Things like, “What is it?” and “Is it a good funding option for my startup?” Here’s a quick primer that will help you fill in the blanks as you think about your funding options. At its simplest, convertible equity is a form of financing that gives investors the right to preferred stock based on a specified triggering event.

What does that mean in practice? Read on to find out.

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Valuation caps: necessary or evil?

Are you considering using convertible notes for your next round of fundraising? If so, it’s important to know what a valuation cap is—especially since it may be the key to convincing investors to take a chance on your company.

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Convertible debt: what it is and how it works

Founders often have questions about how to use convertible debt as part of their funding strategy. Many want to avoid a valuation discussion, so the idea of delaying this negotiation by using convertible debt sounds appealing. But convertible debt involves tradeoffs, so it’s important to make sure you understand the basics before you go down that path.

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