Equity Term

Sometimes corporate securities are designed to convert from their initial form to another form at a later date under certain conditions.

At the early stages (as well as for bridge rounds), a convertible note (aka convertible debt) is designed to convert from a loan into an equity security. Sometimes that security will be a convertible preferred share, which is designed to convert into a common share under certain conditions.

Very large publicly traded corporations sometimes issue “convertibles” which are often debt (bonds) designed to convert to shares (usually common) at a pre-stated price as a means to make those securities more attractive (conversion is a “sweetener” or upside potential if the publicly traded shares rise in value).

In no case are convertible securities as fun as convertible automobiles.

Don Gooding

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