Resources on Convertible Debt For First-time Founders

If you’ve never raised seed money before, the process is intimidating, finding beginner-friendly resources can be challenging, and the articles you do find can contain some investment jargon. Luckily, several awesome VC and angel investors have been willing to share their thoughts, knowledge, and insights on raising money on convertible debt (convertible notes) . Here are some of the resources I’ve used to help demystify the process and hopefully they can help you better understand convertible debt as well.

Overview of What Convertible Debt Is and How it Works #

My favorite summary is a three part TechCrunch series. The ending of part 3 on “accredited investors” was confusing but all-in-all, these posts do a good job of clearly explaining the basics.

• Part 1: Everything You Ever Wanted To Know About Convertible Note Seed Financings (But Were Afraid To Ask)

• Part 2: Convertible Note Seed Financings: Econ 101 for Founders

• Part 3: Convertible Note Seed Financings: Founders Beware!

VC Opinions on Equity vs Debt investments #

Now that you understand what convertible debt is vs a priced equity round, it can help to get more opinions on the pros and cons of each investment type.

• Is Convertible Debt Preferable to Equity? by Mark Shuster

• Has convertible debt won? And if it has, is that a good thing? by Seth Levine

• Some Thoughts On Convertible Debt by Fred Wilson

• Is It Important To Understand Convertible Debt Terms? by Brad Feld

Deeper Look at Convertible Debt Terms #

Jason Mendelson and Brad Feld released a series on the specific terms and considerations of convertible term sheets. I’ve listed each post here for easy reference (askthevc.com didn’t have these clearly listed out).

• The Discount

• Valuation Caps

• Conversion Mechanics

• Conversion In A Sale Of The Company

• Other Terms

• Warrants

• Early Versus Late Stage Dynamics

Some Additional Investment Resources (not just on convertible debt) #

• Paul Graham has written several great pieces on fundraising that can be found among his essays here.

• This Week In Venture Capital — a video with Mark Shuster and Kelly Hwang, Associate at GRP going over some seed investment basics. Great Resource!

• Brad Feld and Jason Mendelson’s entire Term sheet series in PDF format. 45 pages of content but well organized, newbie-friendly, and very thorough.

Update:
Y Combinator recently published this post about Safes, a new alternative to convertible notes that is, in my opinion, much simpler than traditional convertible notes.