Convertible bonds are debt securities that include maturities such as maturity date, interest rate, etc., but are converted into equity when a future capital cycle is raised. The conversion is usually done with a discount on the price per share of the future round table. The rest of the note is generally intended to outline the mechanisms for converting debt repayment into shares. In this section you will find a language that describes what makes qualified financing – a note holder does not want shares in a company that is underfunded (she would prefer a cash refund), so the concept here is to say that it must be part of a fairly robust financing if you want to convert me into shares. There is also usually a language about what happens when there is no qualified funding before the due date. And the last paragraphs are the usual legal clauses of the budget on treaty-compliant interpretation and application. This article aims to provide a quick overview and explanation of key documents in a fundraiser in which investors buy convertible bonds. Unlike a share transaction, these convertible debt transactions do not alter the company`s capitalization by adding new shareholders until the debt is converted into equity. An information subscription contract is very similar to a purchase agreement note (above) – most of the time, it`s just a name agreement. From time to time, however, you will see that subscription agreements are used to take some of the more complex terms of a note and in a separate subscription contract, so that the note and subscription contract work as two halves of a convertible debt. The effect of doing it this way is the same, it only allows for a simpler note and a more in-depth processing of conversion mechanics in a more traditional contractual format. A fictitious purchase agreement is used every time a company issues convertible bonds on convertible securities.
Sometimes note holders insist on things such as board seats, information rights, agreements against the issuance of shares or other debts and/or other conditions that are typically related to stock transactions. In this case, these contractual agreements between the company and the bondholders are usually written in a separate agreement with a title such as Note Holders` Agreement or Voting Agreement. Unlike a Simple Agreement for Future Equity (SAFE), a convertible loan established under a convertible bond contract is remunerated, has a maturity date and sets a minimum amount of funds to be obtained for equity financing. The most typical type of debt is a loan with a fixed timetable for repayment of principal and interest. Assuming the company can make the payments, the investor knows what return he or she receives in advance. Faced with the uncertainty of start-ups in the start-up phase, debt is not very typical when it comes to financing this type of risky business. However, there are a few institutional investors who are weighing on companies that are in debt, especially those with recurring subscriptions, such as SaaS companies.