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It's senior in the capital structure. For a high dollar risky investment like this, you really want to protect against downside as much as you can -- a converti
by ericglyman 12y ago
It's senior in the capital structure. For a high dollar risky investment like this, you really want to protect against downside as much as you can -- a convertible note gives them this protection.
So if it all goes south, these guys can hold debt (rather than common equity) and get first claim on the assets (ahead of common equity).
- wmf 12y agoAren't later equity rounds usually senior to earlier rounds (the "last money in, first money out" principle) anyway?
- ericglyman 12y agoNo, not unless the later equity round is in a different type of security (preferred equity, convertible debt, etc.). Otherwise, all holders of common equity are considered to be on equal footing (pari passu)
- api 12y agoDon't investors normally get preferred shares?
- ericglyman 12y agoNot unless you agree to sell preferred shares. All up for negotiation.