Investor Connect Podcast

Drawbacks to Convertible Notes

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Convertible notes are often used by startups in the early stages of fundraising as they are fairly simple to use and need little legal work compared to equity agreements.

There are drawbacks one should know. 

Here’s a short list to consider:

Convertible notes are not equity agreements and do not qualify for tax deductions such as Section 1202.

Most investors prefer equity over convertible notes and will be more willing to sign up for an equity deal structure.

The note is a form of debt that could be used to reclaim the funds in case of default.

The interest that accumulates from the note should be reported on the investor's tax return and taxes paid, even though the interest was never paid out.

Convertible notes without valuation caps can be a problem for investors down the road as the conversion will be set by the follow-on equity funding.

Finally, most convertible notes don’t define all the terms as a standard equity agreement which includes board seats, voting rights, and more. 

Convertible notes are often used as a placeholder for fundraising ‘til the lead investor is secured, at which point the convertible note for investors convert to equity.


Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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For more episodes from Investor Connect, please visit the site at: http://investorconnect.org 

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Music courtesy of Bensound.

Direct download: Drawbacks_to_Convertible_Notes.mp3
Category:general -- posted at: 6:00am CDT

On this episode of Investor Connect, Hall welcomes Matt DeCoursey, Co-founder and CEO of Full Scale, the Host of the Startup Hustle podcast, top-selling author of "Million Dollar Bedroom" and "Balance Me", as well as the co-author of "The Realist’s Guide to a Successful Music Career".

Headquartered in Kansas City, Kansas, and founded in 2018, Full Scale is a tech services company that helps businesses build teams of software engineers. Their goal is to make finding and retaining highly experienced software engineers fast, easy and affordable.

With over 2.8 million downloads and counting, Startup Hustle is a podcast for entrepreneurs, by entrepreneurs. With the mission of telling the real story of startups and entrepreneurs, topics range from funding to failure and beyond. 

Matt discusses the “Great Resignation” and how it’s playing out in the startup world, common myths about his field of expertise, what online information source he finds most helpful, and what he attributes to the success of his podcast.

You can visit Full Scale at www.fullscale.io, on LinkedIn at www.linkedin.com/company/fullscale-io, and on Twitter at www.twitter.com/fullscalekc.  

You can listen to the Startup Hustle podcast at www.startuphustle.xyz, visit its LinkedIn page at www.linkedin.com/company/startup-hustle-podcast, and on Twitter at www.twitter.com/startupsxyz

Matt’s books "Million Dollar Bedroom", "Balance Me: A Realist's Guide to a Successful Life", and "The Realist’s Guide to a Successful Music Career" are available on www.Amazon.com and other major bookstores.

Matt can be contacted at deco@fullscale.io, on LinkedIn at www.linkedin.com/in/matt-decoursey/, and on Twitter at www.twitter.com/decourseymatt.  

_____________________________________________________________________

For more episodes from Investor Connect, please visit the site at: http://investorconnect.org  

Check out our other podcasts here: https://investorconnect.org/ 
For Investors check out: https://tencapital.group/investor-landing/ 
For Startups check out: https://tencapital.group/company-landing/ 
For eGuides check out: https://tencapital.group/education/ 
For upcoming Events, check out https://tencapital.group/events/  

For Feedback please contact info@tencapital.group   

Please follow, share, and leave a review.

Music courtesy of Bensound.

Direct download: Matt_DeCoursey_of_Full_Scale-Startup_Hustle_podcast.mp3
Category:general -- posted at: 6:00am CDT

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