Question from Harry G.
Can you review the concept of convertable debt? Pros and Cons?
Convertible debt is a loan whose future value can be converted into common stock with the occurrence of some event. Convertible debt benefits startups because it avoids any discussion about the startups value at such an early stage. This type of debt benefits the investor because it gives them a superior position in the startup should it become insolvent and allows for a choice to convert or get repaid when the debt becomes due. Most economic development agencies of state government uses this type of investment, as does TechCatalyst, for its simplicity and the opportunity to convert when the startups efforts are gaining market acceptance.
Great question, and thanks for asking.
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