I’ve written before about the merits of convertible equity for the startup. Recently, I heard about companies that took convertible notes as bridge loans, so I thought it useful to again highlight the potential pitfalls. As you know, a convertible note is a form of a loan. Typically it is converted into stock of the company at a future round of financing. But if there is no future round of financing, the lender (investor) can call the note and demand repayment. In the stories I just heard, when the companies couldn’t repay the notes, the lenders (the investors) foreclosed.
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