3 ms·

It's convertible debt. (a loan that gets either repaid when it matures or is converted into equity at the next priced round)

• justinzollars 13y ago
  who makes that decision? It seems it would always be better to repay.
  • lun4r 13y ago
    assuming that you can repay it. usually you've spent it and therefore you're doing that next priced round. I'm not sure who decides whether it gets repaid or converted.. I recommend you to read up a bit on that. However, if you're not going to convert it into equity it may not be interesting for a seed investor to invest. In that case you should just borrow money from a lender and don't bother with seed investors at all. YC has recently introduced Safe, an alternative to convertible debt: http://techcrunch.com/2013/12/06/yc-safe/ http://techcrunch.com/2013/12/06/yc-safe/ It's convertible debt except it never gets repaid, always converts into equity at some point.
  • deleted 13y ago
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  • staunch 13y ago
    The debt holder (your investor) makes the "decision". It's important to realize that the use of debt like this is a legal hack. It's not intended to be a real loan or repaid like one. This is one of the things YC fixed with Safe http://blog.ycombinator.com/announcing-the-safe-a-replacement-for-convertible-notes http://blog.ycombinator.com/announcing-the-safe-a-replacemen...
    • deleted 13y ago
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