What is the difference between an equity seed round and a convertible debt round? - Quora - 0 views
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Gary Edwards on 07 Oct 16"A startup that needs a small amont of cash (usually under $1.5-$2m or so) will find two typical structures to consider: a "priced round", where the investor and the company agree on the purchase of a certain amount of equity in the company for a given amount of cash. The investor has a known fixed percentage of the company they own when the financing has closed. a convertible note, in which the investor gives cash in exchange for a discount on the next round of funding (which will typically be a priced round). In this case, the investor does not know what % of the company their cash will eventually have bought and, consequently, the entrepreneur doesn't know how much dilution has occurred. There are advantages to each, but to start with, it's worth pointing out that you will rarely see convertibles used in seed financing for amounts greater than $1m or $1.5m. (exceptions do exist). Above that range, the investor typically wants to know what percent he or she owns of the company, so a priced round is far more common. Here's an attempt at a simple explanation of a convertible-note financing and why it is used: If the concept is new and it proves challenging to agree on what the value of this company could be, a convertible is sometimes an easy way of the two parties saying "we're just not sure how to value the company yet until we see some traction or release the product, so let's set aside valuation until we get further down the road." The investor gives cash, and in exchange gets a note (debt) from the company to pay back the amount (plus interest) or convert it to stock in a later round (usually the next financing). Of course the seed investor is betting early and is therefore putting their money in with greater risk, so to offset that risk, they negotiate a discount rate on what their money will ultimately buy at the next round. If the convertible note holder invested $500k in a convertible note, assuming the company wasn't able to pay off the n