3 ms·

Can someone explain in more detail the valuation cap notion (video 20:00-22:00mmss)

• mikeyouse 12y ago
  I had a fairly long reply typed out but I read through it and realized that Mark Suster did it far more justice on his blog than I could in a HN comment: http://www.bothsidesofthetable.com/2012/09/05/the-truth-about-convertible-debt-at-startups-and-the-hidden-terms-you-didnt-understand/ http://www.bothsidesofthetable.com/2012/09/05/the-truth-abou... > Convertible debt with no cap is stupid for investors. Convertible debt WITH a cap is stupid for founders. > With a cap means that every person who wrote you a check assumed that they were going to pay the cap. So if I write you a $500,000 check into a convertible note with a $4.5 million cap I am assuming when I write the check that I will own 10% of your company. If I didn’t assume this I shouldn’t write the check because I have to get involved knowing that I might pay that price. > But entrepreneurs – convertible notes have no MINIMUM! So you’re taking all of the pricing risk. This has worked very well in the 2009-2012 time frame because the tech market has boomed in this period. But many convertible-debt companies are starting to feel that pinch now. I’m starting to hear it more often. And then the market does slow down you’re going to hear an entire generation of convertible-debt companies moan.