What does these mean in plain English, guessing the best way to describe it is by giving theoretical numbers for best worst case instances, though that's just my thought - I'll leave it up to you to decided how to explain it:
The terms? $150,000 in convertibleSOURCE: Start Fund: Yuri Milner, SV Angel Offer EVERY New Y Combinator Startup $150k
debt. With no cap and no discount. If
you’re an investor you know exactly
what that means and you just shuddered
a little. Those aren’t terms that most
angels can match.
If you’re not an investor, here’s what
it means. Yuri and SV Angel just
offered to loan each company $150,000.
That loan will convert if/when the
company raises a proper angel or
venture capital round at the same
valuation that’s set in that round.
Most convertible debt has a valuation
ceiling and also gets a discount on
conversion. This debt doesn’t.
A convertible note is a loan with the right to convert that loan to equity later on. One of the reasons it is used by startups and their investors:
In the example you gave above - the early investor is betting that the quality of the startup is so good that they ust want to get in at the first valuation and don't need/want discount for their early loan.
A cap is the maximum valuation the lender/original investor will pay for equity. So for example if the company was valued at $100M at the subsequent round of funding and the convertible debt had a cap of $10M the original investor buys equity at 10M, not 100M
Take a look at this and other google searches for definitions of convertible debt.