A convertible note (also referred to as convertible debt) is a debt loan that converts to equity when a company reaches a certain milestone, usually the next round of equity financing. It is a common way for early-stage startups to fundraise.
Convertible notes are commonly used as it is less expensive for a company to fundraise using this method as legal costs for document creation are lower which is useful for smaller rounds of funding at earlier stages (before Series A).
We believe investing in early-stage startups is very different than investing in public market opportunities. Besides the unique opportunities associated with startup investing, and the long term liquidation nature of your investments, startups use slightly different terminology with which you may not be familiar. Below is a sample of the most commonly used deal terms.
In a previous post, we delved into the importance of diversification in a start-up portfolio. We looked at ‘The Babe Ruth Effect’ and the number of different positions that should be taken to properly diversify an early stage investment portfolio. Startup investors must be aware that they are going to encounter more losses than wins. Success of a portfolio is based on those few home runs, which drive the overall return. However, there is a degree of nuance and some pitfalls that are worth noting in order to diversify successfully.
Have some extra cash and want to start investing in startups? Become an Angel Investor. An Angel Investor is a private investor who provides working capital for business startups in exchange for equity. Angel investing is a risky investment but the reward is great if you pick winners. Because the majority of startups fail, due diligence is key. Here are the factors to consider when evaluating startup investment opportunities.
Snapchat Shows us that Startup Funding has not Dried up, but Change has come to the Venture Capital Market.
As the CEO of the equity crowdfunding platform + early stage venture fund, Crowdfunder.com, I have a front row seat to the rapidly changing dynamics of Venture Capital.
On May 26th, Snapchat announced it closed a Series F round of $1.8 Billion, at a $20 Billion valuation, jumping $5 Billion from its Series E raise in March of 2015 and up $10 Billion from its Series D raise in December 2014. This valuation shows strong confidence from investors. Snapchat is currently #6 on the Forbes Unicorn list behind companies like Uber and AirBNB. To many readers unfamiliar with Snapchat, it may come as a surprise that it is so highly valued. What is this ghost app you keep seeing?
We are excited to announce the addition of Steven McClurg to our Executive Team. Steven will be serving as Chief Operations Officer of Crowdfunder and Managing Director for the VC Index Fund. He joins Crowdfunder after spending several years in Financial Services, most recently at Guggenheim Partners where he was a Managing Director working in Portfolio Management. Steven was previously an investor and advisor to Crowdfunder before joining the team. We sat down with Steven to discuss the move from Finance to FinTech.
Why did you make the switch to FinTech?
I noticed how regulations such as Dodd-Frank and DOL were disrupting the legacy financial services industry, from capital markets to investment banking to financial advisors. These regulations supported technological disruptions such as robo-advising and equity crowdfunding.
That said, I never planned to make the switch. I thought that I would work in Finance, particularly at Guggenheim, indefinitely. I saw an opportunity as an investor in FinTech, and decided to invest personally in a few different FinTech companies that I felt had resilient and passionate entrepreneurs, solid business plans, and a strong brand. I diversified across robo-advising, peer to peer lending, and equity crowdfunding. Crowdfunder had the strongest business plan and brand, along with great founders. The founders began to call me to get advice, and eventually we decided that we would be great partners to execute on the future of Crowdfunder together.
The long awaited Title III of the JOBS Act goes into effect Monday, May 16th.
With Title III comes the latest in equity crowdfunding laws that permit non-accredited individuals to invest in private startups and small businesses. Investing was previously restricted to wealthier accredited investors and institutions only.
Title III was originally viewed as a potential game changer for fundraising and access to capital, opening up a new and promising avenue for young startups seeking capital.
This week our CEO & Co-Founder, Chance Barnett, was invited to participate in The Milken Global Conference 2016. The Global Conference brings together some of the most innovative individuals who work to explore pressing challenges in financial markets, and various industry sectors such as health, government, and education.