Archives / September, 2011

Convertible Debt – Other Terms

In today’s episode of our convertible debt series, we discussion a few other terms that come into play with a transaction. Interest Rate: We believe interest rates on convertible debt should be as low as possible. This isn’t bank debt and the funders are being fairly compensated through the use of whatever type of discount…

Convertible Debt – Conversion In A Sale Of The Company

In today’s installment of our convertible debt series, we cover a specific case where the company is acquired before the debt converts into equity. There are a few different scenarios. The lender gets its money back plus interest. If there is no specific language addressing this situation, this is what usually ends up happening. In this…

Is A 180 Day Lockup Typical When A Company Goes Public?

Question: A company I used to work for has registered to IPO. Apparently I have to wait 180 days until after the company goes public to sell. Is this typical? When do investors get to sell? What happens when everyone gets to sell at that 180 day point? Does the stock usually tank? Or is…

Convertible Debt – Conversion Mechanics

We continue our convertible debt series today with a discussion about conversion mechanics. This is a very important term, but usually one that everyone can be happy with at the end if they concentrate on it. In general, debt holders have traditionally enjoyed superior control rights over companies with the ability to force nasty things…

Convertible Debt – Valuation Caps

Today, in our series on convertible debt, we examine the conversion valuation cap. The cap is an investor-favorable term that puts a ceiling on the conversion price of the debt. The valuation cap is typically only seen in seed rounds where the investors are concerned that the next round of financing will be at a…

Convertible Debt – The Discount

As we start our convertible debt series, we’ll focus on the discount. Remember that a convertible debt deal doesn’t purchase equity in your company. Instead, it’s simply a loan that has the ability to convert to equity based on some future financing event (we’ll tackle the conversion mechanics in a later post.) Until recently, we…

Convertible Debt Series

We’ve been overwhelmed by the support for our book Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist. As part of the experience of releasing the book, we’ve gotten the chance to interact with many new people interested in the venture capital and angel financing process. The most often requested additional topic that we don’t…

Do You Need To Be A Corporation To Raise VC Funding?

Question: Does one need to switch an LLC to a corporation to raise VC funding? Would you recommend starting out as a corporation pre-money or as an LLC? The short answer is yes, you have to be a corporation to raise VC funding VCs will want you to be a C-Corp for a few specific…

What Should You Do When An Investor Asks You For A Business Plan?

Dan Shapiro has an excellent post up titled What to do when an investor asks you for your business plan. In it he addresses something we missed in Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist. In the section where we discuss business plans, we say: “We haven’t read a business plan in…

Suster: The Problem with Collecting Logos at Startups

Mark Suster (GRP) nails it with his post The Problem with Collecting Logos at Startups. He explains the problem with the following subtopics: Leaderless rounds Not enough skin in the game Nobody’s head on the chopping block Fights over follow ons Information leaks He also answers the question “is there any good case for taking a…