Driving Business Advantage
FOLEY
HOAG LLP
Driving Business Advantage
When to use Convertible Notes
■ In most cases, will be simpler, faster and cheaper than
doing a preferred stock financing, but not always
■ Generally speaking
- $500k or less, use convertible notes
– $1m or more, use preferred stock (even if "seed preferred")
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-
But there are exceptions to both of these
■ Consider your future financing needs:
-
- If
you may never need to raise more money, do a stock deal or
build in an automatic (or optional) conversion of the notes at
maturity
■ Consider if you are able to value the stock:
- Often convertible notes are a way to treat friends and family
money fairly by deferring a valuation until "sophisticated
investors" can negotiate with the company
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