Convertible Notes: Will I or Won’t I?
Are you raising money? If so read on…..
When you start capital raising, one of the things that makes the process complicated is to figure out your valuation.
Many Angel investors have a method they’ll use to value your company. They are known as “price setters”. Many will not, they are known as “price followers”.
If this is the case for you, where there isn’t an Angel investor who can “price” the round, as it’s known, then convertible notes may be a good option for you.
There’s a golden rule in valuations for any asset that applies here:
“It’s worth what someone’s prepared to pay for it”
Using a convertible note defers the valuation discussion until you have an investor who’s experienced enough to set a price, thus reducing the complexity of early stage capital raising.
A convertible note is money you have borrowed, hence it’s called “debt” rather than “equity”.
Another golden rule in capital raising is:
Debt on your balance sheet will reduce your valuation
Hence it’s really important that the convertible note makes it clear the intention is to convert to equity based on future events so you don’t create problems down the track.
4 METRICS THAT MATTER
Convertible note term?
What happens if you don’t convert?