As an alternative to convertible bonds, two other forms of debt equity instruments (SAFE & KISS) are becoming increasingly popular with startups to raise seed capital. These will be standard law documents used by companies at the beginning and available on the Internet for free download. The sole purpose of these resources is to simplify, standardize and reduce the costs of obtaining seed financing. Convertible bonds are defined by four important concepts: interest rate, conversion rate, valuation ceiling and maturity date. We will discuss them in detail in later paragraphs, but note that it is difficult to establish a universal model for convertible debt arrangements. A thorough knowledge of the conditions is essential before signing a fair agreement. However, some fundamental aspects are common in all agreements. Conversion required. This Bond is converted into equity as defined below, issued by the Company on the maturity date of this Bond (as defined below) at a price equivalent to the “conversion price” described in Subsection B. Convertible bonds are investment instruments in the debt capital category. These are granted to companies in the form of loans that are eventually converted into equity. They differ from trade credits, because returns are not in cash, but in shares of the company.
Since these are essentially loans, the terms of the convertible loan describe how interest is received and how the investor benefits from the accumulated capital and interest, all converted into equity at maturity. .
Comments are closed.