On 12/17/2014 09:09 AM, Tod Hansmann wrote: > On Wed, Dec 17, 2014 at 9:02 AM, Daniel Fussell <[email protected]> wrote: >> On 12/16/2014 02:11 PM, Gabriel Gunderson wrote: >>> There's this: >>> >> https://beehivestartups.com/blog/what-convertible-note-and-how-does-it-work/ >> >> So they want the gains of stock with the guarantees of a bond. Sounds >> like a great business model for the capital provider, and a hamster >> wheel for the start-up. >> >> > Uh, no. The math doesn't work that way at all. Don't get me wrong here, > I'm happy to be critical here as I usually am on investors being greedy or > whatnot, but they aren't taking much of any sanctions on their investment. > They are, simply speaking, taking a cut of the valuation proportional to > the investment weighed against that valuation. This is both reasonable as > an investor and expected as a startup. The only way you lose in this > situation as a startup is if you have a valuation at a low enough amount as > to give the folks holding the other end of the note more of the company > than you. Note that you could also be giving up more of the company to the > other investors valuing you, so this is a situation you're already forced > to deal with. > > -Tod Hansmann > > /* > PLUG: http://plug.org, #utah on irc.freenode.net > Unsubscribe: http://plug.org/mailman/options/plug > Don't fear the penguin. > */ >
I suppose there is value to both company and earnest investor, providing for operations cost while due diligence is done. But I'll bet there are investors with no interest in due diligence that use it to horn in on private preferred stock early on and let someone else do the research, or sell the bond to an earnest investor for a premium, then lather, rinse, and repeat. ;-Daniel /* PLUG: http://plug.org, #utah on irc.freenode.net Unsubscribe: http://plug.org/mailman/options/plug Don't fear the penguin. */
