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Instead of an equity investment, have you considered convertible debt? The risk with relatively small and early investment from you at a high valuation, is tha
by bdclimber14 16y ago
Instead of an equity investment, have you considered convertible debt?
The risk with relatively small and early investment from you at a high valuation, is that the startup will need to raise the 500k at a higher valuation at 2.5M pre. What happens if they only can negotiate 1-2M? Your stock value could be cut in half.
Overall, the convertible debt will give everyone more flexibility for raising the 500K round, and since it sounds like its critical, you'd rather not have any restrictions on it.
- startmeup11 16y agoConvertible debt is looking like the way to go. Does anyone have experience with discounting the equity when the note is converted? I feel like there should be a recognition of the increased risk for early investing. Would a discount of 50% be a restriction in terms of raising the 500k from other investors or is it a pretty standard term?
- bdclimber14 16y agoI honestly don't know how restrictive this would be in practice, but I have heard of plenty of situations with a 50% discount so I don't think its absurd.