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.
Diversification is key to mitigating risk and maintaining a healthy startup portfolio. As media coverage is saturated with news of unicorns like Facebook and Alibaba leading to huge paydays for investors, it’s easy to look past the risk to the possible reward. But it’s important to remember that the majority of startups fail. According to performance analysis by the Kauffman Foundation, 52% of all venture exits are at a loss. How can you integrate diversification into your portfolio?
Earlier this month, Microsoft announced it would acquire LinkedIn for $26.2 Billion, valuing the company at 91 times earnings. LinkedIn performance has been lackluster since it’s public debut dropping $11 Billion from its market value in February following lower than expected 2016 revenue forecasts. Despite poor performance, many in the Venture Capital and Technology space argue this acquisition is a good deal for Microsoft. The potential upside is huge given LinkedIn’s domination of the professional social networking space boasting 430m registered users and 100m visitors to its site each month.
The deal signals the growing wave of tech acquisitions and a decrease in IPOs caused by a race for market share between the tech titans (Google, Microsoft, Apple, Facebook and Amazon) and a data grab by these companies. This is good news for startups and investors, providing another route to liquidation in a tough IPO market.
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?
You came up with an idea. Started a business. Built an MVP and attracted users to the platform. You now need funds to scale. It’s time for your seed round. The success of your seed round will determine the success of the business. Follow these tips, to make sure you get it right the first time.
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.