📄What’s a convertible loan agreement?
A convertible loan agreement is a financial instrument that combines debt instrument with an equity instrument. It’s important to mention that there’s a mechanism by which the debt will convert into equity under certain conditions (e.g. fundraising round).
🤝What needs to be negotiated during a convertible loan agreement?
- What is the loan amount?
- Is there an interest to be repaid or not?
- Is there a cap and a valuation of the company?
- Other typical investor rights (e.g. information rights)
🤗Why do entrepreneurs opt for a convertible loan agreement?
- They can get cash relatively quickly
- It can go fast to negotiate a convertible loan agreement
- It allows the company to have more funds to complete certain milestones
- The investors community, lawyers and tax companies are familiar with this instrument
Thanks to all the startups for your participation!