Although there are no strict rules for financing your start-up, in our experience, we tend to see customers to be successful in raising their first round of capital, either convertible bonds or shares of preferred.

Private placement of convertible bonds – is usually the easier of the two structures to negotiate and execute. The investment will be in the form of promissory notes convertible into shares on the terms of a qualified financing in the future. The financing is defined by qualified with a minimum amount – for example – 0.5 million of the total investment over a longer period. The note will be either qualified at a price below the cost of financing (usually in the range of 20% to 40%) will convert to cover their office (usually about 20% to 40%), or both.

The reduction and / or warranty will cover it so that investors start an additional share in exchange for taking risks to

Benefits

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The purpose of this evaluation can be found until the next round, moved the capital. Many of the early investors and entrepreneurs agree that setting up an assessment at a time when the business model remains largely untested practice is uncertain at best. The convertible bonds will take precedence over shareholders in the event of liquidation of the company. The transformation function is a chance for the holder, in justice and participation to convert to the head. can transform the ability of capital and interest (at a discount) to the owner with regard to the possibility of purchasing a greater share of the company if investors simply had a direct purchase of capital. Unless changed, the investment is a promissory note at maturity, if the circumstances can the right to conversion is not reached.

Cons:

In the event that triggers the conversion does not occur, the debt due and payable at maturity. This calendar can be a major obstacle for the company. Misalignment of interests – the company wants the prize for the next round (qualifiers) to be as high as possible, while the note wants to holders the price as low as possible (because the conversion price of its class will be used on the price in the next round, )

Benefits:

Unlike debt, there is no obligation to invest at a later time to repay. The company’s ability to take on debt in the future because it is insolvent, is not hindered, as there is no existing debt. With the purchase of equity investors in the company’s success to the head.

Cons:

As already mentioned, it can make it difficult for the company and investors to an accurate valuation of the company at the time of financing. There is a significant risk that the company bad their evaluation, which have a negative effect for the future. Equity participation is subject to downside risk, and it is for investors to lose his entire investment. Investors are likely to be diluted over time (or at least contribute necessary additional capital in order to protect his property per cent).


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