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Convertible Debt is Bad For Angels

A couple of years ago, Paul Graham (Y Combinator) tweeted “Convertible notes have won. Every investment so far in this YC batch (and there have been a lot) has been done on a convertible note.”

The truth is convertible debt has not won.  Many sophisticated angel investors and angel groups refuse to invest in convertible debt in seed/startup deals.  Why? 

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Convertible Debt, Priced Equity Rounds and Deal Timing

An impromptu Twitter debate arose among Fred Wilson, Dave McClure, Mark Suster, Chris Dixon and others about convertible debt, priced equity rounds, and the nuances of early stage financing. It was such a good discussion that Fred asked that someone Storify it. I’ve done that here and expanded it with some additional references, background info and light commentary.

http://storify.com/antonejohnson/convertible-debt-priced-equity-rounds-and-timing

How does Convertible Debt work?

Let’s start by understanding that because we are talking about something called “Convertible Debt”, it means that whatever it is will start out as one thing, and potentially convert (or “change”) into something else. In this case, what the investor receives in exchange for his or her cash starts out as debt, and potentially converts into equity.

Debt is a

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Convertible Debt: Worst Form Of Seed Financing — Except For All The Others

How to finance a new seed-stage startup?  Equity?  Convertible debt?  Convertible equity?

As of August 2010, Paul Graham famously proclaimed, “Convertible notes have won. Every investment so far in this YC batch (and there have been a lot) has been done on a convertible note.”  Yet in my little corner of Wonksville, Founder Institute CEO Adeo Ressi and Yoichiro “Yokum”

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Knowledge Is Power: Convertible Note Financing Terms, Part III

Last week, we took the plunge and began dissecting an example term sheet for a convertible debt financing round piece by piece.  I’ll continue with more specific terms and wrap up next week with some thoughts about recent changes and trends for the future. Readers may find it helpful to download the sample term sheet from my firm’s website and

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Knowledge Is Power: Convertible Note Financing Terms, Part II

Last week, we gave some attention to the “why” behind convertible note financing for early stage startups.  In this installment, I’ll dig into the “how” by dissecting an example term sheet based on a real deal.  For those playing at home, you may find it helpful to download the sample term sheet from my firm’s website and follow along with

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Knowledge Is Power: Convertible Note Financing Terms, Part I

The most successful serial entrepreneurs in the world may found three or four, perhaps even eight or ten venture-backed startups over the course of their careers. By contrast, venture capitalists and angel investors typically make scores or even hundreds of investments over the course of their careers. It should therefore come as no surprise that an asymmetry of information exists,

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