Convertible Note

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A note used for the most well-known method of raising venture capital in Silicon Valley; raising convertible debt. This is when the investor buys shares priced at a later round of a companies VC raising.

Raising capital for alot of companies is a long term process. Basically convertible debt just makes it so that a VC gets more bang for his buck because he invested earlier. Each round the shares get more expensive, but you don't know how much of a discount one will get until each subsequent round. Value is pretty relative in this way.

If this sounds like economic black magic, it's because it kind of is. There are very few industries in the world in which people raise finances this way. When one understands how convertible debt works, TechCrunch headlines also sound less impressive and one begins to wonder if values are purposely inflated or deflated to fit different situations.

NOTE: It's technically regarded as "debt," which is why many entrepreneurs are pushing for the use of essentially the same thing called a SAFE (which doesn't use the word debt in it's language).

Steven Pham raised 200k on a convertible note to pursue his idea of mass producing solar powered dildo dispensers which send live tweets on the buyers identity upon sale.

Added by yungsnuggie yungsnuggie almost 5 years ago