Convertible debt is a financing mechanism that early stage ventures can use instead of going directly
to an equity financing round. It basically functions as a loan to the company, but instead of a loan that
gets paid back with cash, it gets paid back (usually at a premium — see “Conversion Preference” below) with
equity at the next round of financing.
Convertible debt can be a much smarter financing mechanism than straight equity for a startup that isn’t
quite ready for a formal valuation. For more information on the impact and implications of convertible
debt, click the ‘More Info’ link below.
