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Should You Issue Equity, Debt or Convertible Securities?

Broadly speaking, there are three types of financing transactions available to companies:

  1. Equity

    Typically, in these types of financings, preferred equity is issued to investors. Regular participants are venture capital funds, growth capital funds and some seed equity investors.

  2. Debt

    Debt financings involve entering into a term loan, a revolving line of credit or another credit facility with a bank, financial institution or state loan agency.

  3. Convertible securities

    Convertible securities take the form of convertible notes, SAFEs, KISSes or other alternative convertible instruments. These are securities that give the investor a right to convert into preferred equity.

When deciding to offer equity, debt or convertible securities, startups should pay particular attention to:

  1. Timing
  2. Valuation
  3. Financial condition
  4. Use of proceeds

Click on these links for more detailed information about equity, debt and convertible security financings.

For more information, please contact a member of our Early Stage & Emerging Companies practice group.