quickest way to raise funds (partially)
If the round is 500k but we need 50k today
What's the best way to structure this? (get some money transferred to our bank account/doesn't have to be the entire amount) Equity or convertible notes?
we're an early stage tech startup
2 Answers
The answer depends on:
- whether you have a shareholder's agreement or not
- how expensive it is for you to get legal paperwork done
- how easy a share pricing conversation is/how much you trust each other
The simplest is to just sell shares. That takes paperwork so easy you can almost write it yourself. It also protects you as a common shareholder. This assumes you have a shareholder's agreement, which is nice (though not strictly essential) to have before you take in a new investor. As a point of goodwill, you might agree with the investor if the price of the $500K is less than the $50K price per share that you will give the investor the break.
If deal legal paperwork is cheap to get done, the share pricing conversation is not easy and/or the investor is untrusting, then a convertible debenture gives the investor more protection, including price protection.
In most cases my recommendation would be to do the shares. It depends a bit on the side of the table you sit on.
Are the rest of 500k lined up already? If so then I would recommend to take a look at bridge loan. In the case, if 500k is what you want to get (but doesn't have anything ready to close) then equity or convertible notes are good option.
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not the entire amount. one investor is willing to write a check for 50k today – Tim 11 years ago
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Just to be on the safe side. I am not a legal advisor (so take it with the grain of salt). However, as I understand equity deals are a little bit more straightforward. If you plan to do convertible notes, you will need to craft more complex documents. – Victor Ronin 11 years ago
