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        • 4 Easy Steps to Improve Startup Funding Efficiency

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Convertible Note

April 28, 2015 by FundingSage -

A debt instrument that can be converted into another security, such as shares of common or preferred stock.6


Related Terms

Venture Debt | Capitalization Table | Series A Preferred Stock

Related Articles

Why Startup Investors Hate Debt

The Holy Grail of Entrepreneurship: The Term Sheet, Part 3 – Capitalization Table

Investable Companies #1: Is Your Startup Investable?

Convertible Security
Convertible Preferred Stock

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Definitioner

HR
Human Relations
Preferred Stock
  • A class of ownership that has a higher claim on assets than Common Stock. In the event of Liquidation, preferred stock shareholders have priority over earnings and assets and generally earn dividends, but forego voting rights.2
  • A class of capital stock that may pay dividends at a specified rate and that has priority over common stock in the payment of dividends and the liquidation of assets. Many venture capital investments use preferred stock as their investment vehicle. This preferred stock is convertible into common stock at the time of an IPO.3
  • This is a type of corporate share where the holders can exercise more rights, preferences, and privileges than those with common stocks. It is often issued by private corporations or enterprises that have not gone public yet. Both angel investors and venture capitalists prefer to invest with preferred stock because of the superior rights and protective provisions associated with these shares.4
Debt Instrument
Any instrument evidencing the obligation of the maker to pay the holder of the debt instrument. Includes Bonds, Debentures and Notes of all kinds.3
Debt
  • Any obligation by one person to pay another. May be a primary (direct) obligation as in a Note, or a secondary (contingent) obligation as in a guaranty.3
  • This is an amount of money that a borrower owes to an individual, investor, or lending institution. In the finance world, the word “debt” is often associated with interest payments. For example, when an individual has a credit card limit of $5,000, the lender, usually a bank, is willing to lend the credit card holder $5,000 of credit. If the lender uses $500 of that total amount, they are now considered to be in $500 debt until the total amount is paid. Partial payment of an owed amount always encompasses interest.4