Convertible bonds are also increasingly used during the start-up phase. There is a lot of criticism of this practice of VCs, especially when the notes are overused and contain harsh terms. I recommend reading this piece by Mark Suster on the subject. Nevertheless, we tend to focus on stock sessions: instead of concealing/avoiding terms or valuations, we agree at the beginning on the whole structure, so that we can focus on what is important: creating value for the startup. More details on how we define the structure and how we think a fair action sheet should be in the next post. Disadvantages of convertible bonds for investors include: if the loan is not converted into equity, the loan must be repaid either on the maturity date or as a result of a default. It is a simple convertible loan contract intended to be used when a shareholder lends money to a company, usually as a form of transition financing to an expected event (for example. B, the signing of a major trade agreement or a capital raising round). 2.
The terms of repayment are set in the second part and the funds that allow the loan to be repaid. The most common repayment mechanisms follow: maturity date – sets the deadline for automatic conversion of the loan into equity if no financing cycle takes place before the reference date. A contractor must also repay them on pre-agreed terms. It is therefore customary to refer, when setting the ceiling, to an assessment of the whole transaction and not to a price per share. If this value is defined as a “post-currency” (which, in our experience with ordinary convertible bonds, is still rare, but was introduced in the “Simple Agreement for Future Equity (SAFE)” standard after a recent change, often used in the United States instead of a traditional change), it will provide the investor (lender) with a guarantee on the (percentage) of its share in the conversion: if the investor invests about 1 million euros for a post-monetary ceiling of 10 million euros, he knows that his share before dilution by the shares issued during the financing cycle will be at least 10% (EUR 1 million/10 million EUROS). From a technical point of view, this is done by incorporating the issued shares with all other convertible investors into the definition of “fully diluted shares” used to calculate the processing price.