CONVERTIBLE BOND TO INVEST IN STARTUPS

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A convertible bond is a type of financial instrument that combines features of a bond and a share. Just like a bond, a convertible bond provides a fixed income stream to its investor, but also, has the option to convert into shares of the company at a later point in time. This means that, instead of receiving a return of capital at a future date, the investor can convert his investment into shares in the company. This can be attractive to business angels as it gives them the opportunity to become shareholders in the company and participate in its potential growth. However, it is important to bear in mind that, While a convertible bond can be an attractive way to invest in a start-up, it also carries certain risks. For example, the value of the company's shares may decline, which may reduce the return on investment. In addition, there is no guarantee that the company will be successful and be able to meet its financial obligations. Therefore, before investing in a convertible bond, it is important for business angels to carry out a thorough research on the start-up and carefully assess the risks and opportunities of the investment. It is also recommended, consult a financial advisor or lawyer for a fuller understanding of the terms and conditions of the convertible bond.

Advice for business angels

If a business angel wishes to invest in a start-up through a convertible bond, it is important to consider the following tips:

1. Understand the terms of the convertible bond: the business angel should ensure that it understands the terms and conditions of the convertible bond, including the term, the interest rate, the timing of conversion and the rules for conversion.
2. Assess the potential of the start-up: the business angel must assess the financial situation and growth potential of the start-up before investing.
3. Consider the risk: Investing in a startup through a convertible bond is a high-risk form of investment. The business angel must be willing to assume this risk and have a clear strategy to mitigate it.
4. Consider liquidity: the business angel must consider the liquidity of its investment. Although a convertible bond offers the opportunity to convert into shares, it does not guarantee that the business angel will be able to sell the shares at any time.
5. Maintain open communication with the start-up: the business angel should maintain open communication with the startup and be aware of its development. This will allow them to make informed decisions about their investment and adjust their strategy accordingly.

Investing in a startup through a convertible bond can be an interesting opportunity for business angels, but it is important that they carefully consider the risks and do their due diligence. due diligence (see+) before making a decision.

Advice to the startup

If a start-up is seeking financing through a convertible bond, it is important to consider the following:

1. Clearly define the conditions of the voucher: the terms of the bond, such as conversion into shares, term, interest and conversion rate, should be clear and agreed between the start-up and the investors.
2. Assess the impact of the conversion on the shareholding structure: the conversion of the bonds into equity can significantly affect the startup's shareholding structure. It is important for the startup to carefully assess how the conversion will affect its long-term structure and strategy.
3. Consider investors' rights: Investors who purchase convertible bonds have the right to become shareholders at a later point in time. It is important for the startup to consider these rights and ensure that it complies with the obligations associated with them.
4. Maintain transparency and communication: It is important to maintain open and transparent communication with investors throughout the convertible bond investment process. The startup should provide up-to-date and relevant information to investors and respond to their questions and concerns.

Convertible bond investment is an interesting alternative for startups seeking short-term funding and looking for the option to convert shareholders at a later stage. However, it is important for the start-up to carefully consider the implications of this funding strategy before making a decision.