On 12/17/2014 12:34 PM, Daniel Fussell wrote:
On 12/17/2014 09:09 AM, Tod Hansmann wrote:
On Wed, Dec 17, 2014 at 9:02 AM, Daniel Fussell <dfuss...@byu.edu> wrote:
On 12/16/2014 02:11 PM, Gabriel Gunderson wrote:
There's this:
https://beehivestartups.com/blog/what-convertible-note-and-how-does-it-work/
So they want the gains of stock with the guarantees of a bond. Sounds
like a great business model for the capital provider, and a hamster
wheel for the start-up.
Uh, no. The math doesn't work that way at all. Don't get me wrong here,
I'm happy to be critical here as I usually am on investors being greedy or
whatnot, but they aren't taking much of any sanctions on their investment.
They are, simply speaking, taking a cut of the valuation proportional to
the investment weighed against that valuation. This is both reasonable as
an investor and expected as a startup. The only way you lose in this
situation as a startup is if you have a valuation at a low enough amount as
to give the folks holding the other end of the note more of the company
than you. Note that you could also be giving up more of the company to the
other investors valuing you, so this is a situation you're already forced
to deal with.
-Tod Hansmann
/*
PLUG: http://plug.org, #utah on irc.freenode.net
Unsubscribe: http://plug.org/mailman/options/plug
Don't fear the penguin.
*/
I suppose there is value to both company and earnest investor, providing
for operations cost while due diligence is done. But I'll bet there are
investors with no interest in due diligence that use it to horn in on
private preferred stock early on and let someone else do the research,
or sell the bond to an earnest investor for a premium, then lather,
rinse, and repeat.
;-Daniel
/*
If you are needing gold, those that have it are king. An idea is
worthless by itself as a business. A prototype increases value a little
more. Profit generation ensures that you either don't need the
investment (bootstrapping) or that you have more leverage in such
'negotiations' and have mitigated an amount of risk (taken risk on
yourself). It is not about greed per se with most investors & angels I
have worked with or know of, but it is targeted compensation for the
known and probable risks and what the investor feels comfortable adding
to their risk pool (roughly 1 in 10 investments pay off in a substantial
way for a selective investor).
If you wish to have a generous benefactor that is somewhat blind to the
risk of your project, mom or dad come to mind, possibly. If you have a
growth plan you can accelerate, then this is yet another vehicle or tool
to use.
Mister Ed
/*
PLUG: http://plug.org, #utah on irc.freenode.net
Unsubscribe: http://plug.org/mailman/options/plug
Don't fear the penguin.
*/
