Angel investor · Convertible note

Can I raise a Series A as convertible debt?

Anonymous

Last updated on November 15th, 2017

I know that a typical seed round is $1M raised as convertible debt at a 20% discount and $5M cap. I'm aiming to raise $4M next year, and I believe the family offices I'm talking with now can fund all of that, but I'm not sure what the terms should be.


If I raised the $4M at a 20% discount and $5M cap, how much equity would that end up being? To add context, I've got contracts in place that I expect will generate $20M/yr within two years, and I don't expect to raise another round while I work on these contracts. Does 'conversion' only occur if/when I do that future priced round?

Katherine Gaffney Founding Partner at Xcelerate Financial

November 15th, 2017

Series A means it is a priced round, so the 2 are mutually exclusive.


If you raise $4M on a $5M cap with 20% discount, you will have given away 100% of the company. Conversion usually occurs when there is a future round, but can be written for how you both prefer. I suggest you have a much higher cap or just give a 25-30% discount on the future round.

Curt Sahakian Attorney

Last updated on November 15th, 2017

All these elements are negotiable. All you need is a willing investor.


Traditional venture capitalists are a bit rigid on their investment structure. No need for you to worry about it. They will tell you the way it will be.


Family Offices by their very nature are flexible and adaptable. It just needs to make good business sense to them.


Just picking up on some the elements of your question. You probably have no business involving yourself in such negotiations. I would hire yourself some experienced professionals.



Stefan Zuckut Executive Consultant and Board Member

November 15th, 2017

This is really all up to negotiation. Larry Ellison (Oracle founder) did just a debt issuance for his first round, I believe. That's how he ended a with a sizable ownership stake.


Stefan

Russell Jones Serial entrepreneur, CEO Cargo Chief, 6 Patents, Looking For Non-Bay Area Full Stack Engineer

November 15th, 2017

Not sure why you are raising $4M with a $5M cap, that does not make sense to me, raise less at such a valuation.


Sofia Loredana Focus

November 19th, 2017

I belive that conversion should occur when you start the next priced round, but you should talk with the family obout a precise date. Pe 15 nov. 2017 15:31, "CoFoundersLab" a scris: