WeWork Labs Seminar:
Raising Money by Convertible Debt
Jen Berrent
Jared DeMatteis

October 15, 2013
Attorney Advertising
Raising Money by Convertible Debt
Topics
 What is convertible debt?
 When should I use convertible debt instead of equit...
What is convertible debt?
Convertible debt is a loan with equity features


Debt terms: principal, maturity, interest


...
When should I use convertible debt
instead of equity?
 Pros
– Few variables to negotiate (so quick with low transaction c...
What are the market terms for
convertible debt?
Loan Terms
 Aggregate Amount
 Proposed Minimum Investment
 Initial Clos...
What are the market terms for
convertible debt?
Conversion upon a Qualified Financing
 Definition of a Qualified Financin...
What are the market terms for
convertible debt?
Conversion upon a Sale of the Company
 Definition of a Sale
 Payment to ...
What are the market terms for
convertible debt?
Conversion at Maturity
 At the Election of Company and/or Election of Not...
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WeWork Labs Seminar: Raising Money by Convertible Debt

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Explores:
- What is convertible debt?
- When should I use convertible debt instead of equity?
- What are the market terms for convertible debt?

Published in: Business, Economy & Finance
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WeWork Labs Seminar: Raising Money by Convertible Debt

  1. 1. WeWork Labs Seminar: Raising Money by Convertible Debt Jen Berrent Jared DeMatteis October 15, 2013 Attorney Advertising
  2. 2. Raising Money by Convertible Debt Topics  What is convertible debt?  When should I use convertible debt instead of equity?  What are the market terms for convertible debt? © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 2
  3. 3. What is convertible debt? Convertible debt is a loan with equity features  Debt terms: principal, maturity, interest  Debt claim priority against assets  Principal (and sometimes accrued interest) may be converted into equity  Conversion may be at the option of the holder or the company, and may be subject to certain contingencies  Often convertible (sometimes at a discount) into securities issued in first equity round raised from outside investors © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 3
  4. 4. When should I use convertible debt instead of equity?  Pros – Few variables to negotiate (so quick with low transaction costs) – No current valuation need be set – Maintains control by the founders  Cons – Not a “priced” round – Converts at a discount in the next round – Often includes a “cap” on conversion price into next round © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 4
  5. 5. What are the market terms for convertible debt? Loan Terms  Aggregate Amount  Proposed Minimum Investment  Initial Closing  Interest Rate  Due Date of Notes © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 5
  6. 6. What are the market terms for convertible debt? Conversion upon a Qualified Financing  Definition of a Qualified Financing  Discount to Purchase Price  Cap on Purchase Price © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 6
  7. 7. What are the market terms for convertible debt? Conversion upon a Sale of the Company  Definition of a Sale  Payment to Noteholders: – Based on conversion into Common Stock – Fixed return (multiple of principal) © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 7
  8. 8. What are the market terms for convertible debt? Conversion at Maturity  At the Election of Company and/or Election of Noteholder(s)  Conversion Rate – Fixed at initial issuance of notes – Calculated at maturity (based on fully-diluted equity outstanding) Wilmer Cutler Pickering Hale and Dorr LLP is a Delaware limited liability partnership. WilmerHale principal law offices: 60 State Street, Boston, Massachusetts 02109, +1 617 526 6000; 1875 Pennsylvania Avenue, NW, Washington, DC 20006, +1 202 663 6000. Our United Kingdom offices are operated under a separate Delaware limited liability partnership of solicitors and registered foreign lawyers authorized and regulated by the Solicitors Regulation Authority (SRA No. 287488). Our professional rules can be found at www.sra.org.uk/solicitors/codeof-conduct.page. A list of partners and their professional qualifications is available for inspection at our UK offices. In Beijing, we are registered to operate as a Foreign Law Firm Representative Office. This material is for general informational purposes only and does not represent our advice as to any particular set of facts; nor does it represent any undertaking to keep recipients advised of all legal developments. Prior results do not guarantee a similar outcome. © 2014 Wilmer Cutler Pickering Hale and Dorr LLP © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 8
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