In the event of a funding event (or change of control), this $150k turns into $150k worth of stock at the valuation established AT THAT TIME. Example #1: Comp

In the event of a funding event (or change of control), this $150k turns into $150k worth of stock at the valuation established AT THAT TIME. Example #1: Company A takes the offer and sells for $1m in 6 months. The debt converts to $150k in stock, netting the investor $150k. Example #2: Company B takes the the offer and raises $1m at a pre-money valuation of $3m (selling 25% of the company and establishing a post-money valuation of $4m). The $150k turns into $150k in stock at the new valuation, so 3.75% of the company. Normally, there are various ways (discounts, caps, etc) to reward the early investor for the additional risk they are taking for investing so early. Basically what this means is YC companies can (if they want) eschew funding at demo day, hold out for great terms, or just get busy creating value and raise money when they have more leverage. This is huge.