Convertible Debt

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.

More Info