Question
Hi! I would like to ask another question regarding startup finance: I have heard about convertible debt as a tool for startups to give early employees a stake in the company. What exactly is convertible debt and how can it help our company? We are based in Boulder, CO.
Answers: 1 public & 0 private
Convertible debt is a loan (debt) that converts to equity in the company at a predetermined conversion rate. The debt can convert at the election of the company or at the election of the investor, depending on the deal struck. It is not typically a tool to provide equity to employees unless they are lending money to the company or forgoing compensation. Stock options may be better to compensate employees and provide them ownership in the company.
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