What’s the best way to raise in convertible notes or in your priced equity round?

Seth Levine (Managing Director @ Foundry Group)
Has convertible debt won? And if it has, is that a good thing? /

Entrepreneurs like convertible debt for some obvious reasons. For starters, it can be much quicker to put together a convertible debt financing, so more of the capital being raised goes to the operations of the business, not to the lawyers (this clearly benefits both the entrepreneur and investors). Importantly it also puts off the valuation question to a later date and tends to shift at least some risk from entrepreneur to investor (I’ll talk ab… (read more)

What’s the best way to raise in convertible notes or in your priced equity round?

Mark Suster (Managing Partner at Upfront Ventures)
Bad Notes on Venture Capital | Bothsides of the Table

I have never come across a sophisticated A, B or C round venture capitalist who thinks convertible notes are a smart move for entrepreneur or investor. They only people I have heard promoting them tend to be super early stage investors or accelerators and often when I talk to them about the structure they’ve never given much thought beyond “they’re easier,” “they’re cheaper” or “it’s faster to raise this way” none of which is actually true.

Mark Suster (Managing Partner at Upfront Ventures)
The Truth About Convertible Debt at Startups and The Hidden Terms You Didn’t Understand | Bothsides of the Table

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

Yokum Taku (Corporate and Securities Partner @ Wilson Sonsini Goodrich & Rosati)
Is convertible debt with a price cap really the best financing structure?

Mark Suster does a good job analyzing whether convertible debt is preferable to equity, and concludes that convertible debt is better. I’ve pondered the issue of convertible debt vs equity and come to the same conclusion. Most commentators generally seem to be concluding that convertible debt with a price cap is better than a priced Series A round.

Yokum Taku (Corporate and Securities Partner @ Wilson Sonsini Goodrich & Rosati)
Should a startup company raise its seed round using a convertible note or Series A Preferred Stock?

Generally speaking, I think that the founders of a startup company are probably better off with a convertible note financing over a Series A financing in a seed round for a couple of reasons. 1. A convertible note avoids setting a valuation for the company. 2. Convertible note documents are simpler than a Series A. That being said, I think that there are two principal reasons to dislike convertible debt from the founders’ perspective. 1. Converti… (read more)

Ted Wang (Partner at Fenwick & West)
Version 2.0 and why Series Seed Documents are better than capped convertible notes – SeriesSeed.com

Why use Series Seed Documents instead of capped convertible debt? This seems to be the real issue. In my opinion, the reason that capped convertible debt is the current market leader is that entrepreneurs have been conditioned over time to believe that convertible debt is (a) faster (b) cheaper and (c) better for them than equity investment. This is EXACTLY why I created the Series Seed Documents.

Mark Suster (Managing Partner at Upfront Ventures)
Is Convertible Debt Preferable to Equity? | Bothsides of the Table

Should entrepreneurs ever prefer a priced equity round to convertible debt? If you have a choice between pricing a round and not pricing a round for the exact same investors then it is in the entrepreneur’s best interest not to price it and I could understand why one would do this.

Mark Suster (Managing Partner at Upfront Ventures)
Raising Angel Money | Bothsides of the Table

When you raise money as convertible debt it means that the money you raise is in the form of a loan and not given as equity. It is called convertible because it usually automatically converts to equity when you raise your professional round of venture capital. It typically gets a discount to the price that the VC pays. The discount can be any % number but in my experience is usually between 15-30%

Ron Conway (Founder & Co-Managing Partner @ SV Angel)
Raising Angel Money | Bothsides of the Table

[via Mark Suster] Ron Conway said he never likes to do convertible debt deals and always insists on pricing his investments. His rationale was clear, “If I invest in a company I open my Rolodex for them. I help them with business development introductions. I introduce employees. I give them credibility in the fund raising process. Let’s say the company was worth $1 million when I met them and I’ve helped them with both my Rolodex and my cash… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Convertible Debt – AVC

A priced equity round can be done quickly and inexpensively. Most experienced venture lawyers have a standard form of “lightweight Seed” or “lightweight Series A” documents that can be signed without negotation on both sides. We do this all the time.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Convertible Debt – AVC

When you set the price, both sides know what deal they got. It’s locked in and they are in business together and aligned. The entrepreneur can’t get screwed later when the price drops on them. And the investors can’t get screwed later when the price jumps on them. This is a big deal. I don’t understand why folks don’t understand it.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Convertible Debt – AVC

Equity is simple. You own what you own. Debt is complicated. All sorts of things can happen with it, including bad things.\

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Financing Options: Convertible Debt – AVC

Friends and family rounds, which we discussed earlier in this series, are often done via convertible debt. It makes sense that friends and family would not want to enter into a hardball negotiation with a founder and would prefer to let the price discussion happen when professional investors enter the equation.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Some Thoughts On Convertible Debt – AVC

It used to be that convertible debt was a lot easier and cheaper to do legally. But with non-negotiated “light Series A docs” from most top venture law firms out there, you can do a Series A Preferred for less than $5000. And these light Series A documents focus on economics not control and governance, just like converts do. So to me that is not a valid argument for doing convertible debt anymore.

Seth Levine (Managing Director @ Foundry Group)
Has convertible debt won? And if it has, is that a good thing? /

Entrepreneurs like convertible debt for some obvious reasons. For starters, it can be much quicker to put together a convertible debt financing, so more of the capital being raised goes to the operations of the business, not to the lawyers (this clearly benefits both the entrepreneur and investors). Importantly it also puts off the valuation question to a later date and tends to shift at least some risk from entrepreneur to investor (I’ll talk ab… (read more)

Bill Burnham (Managing Partner @ SoftBank Capital)
Burnham’s Beat: Why Convertible Debt Is A Sucker’s Play

Rather than beat around the bush, let me just say that as someone who has made numerous angel investments in addition to lots of VC investments, Convertible Notes are generally a sucker’s play in today’s market for angels/investors and can even be bad news for entreprenuers.