Convertible Loan Set-up

A convertible loan (debt financing) will convert into equity in the future in case of certain trigger events. With a convertible loan, an investor lends a certain amount of money to your startup with the right to convert the loan into shares, usually for a discount at the next financing round.

The top reasons to opt for a convertible loan are:

• You want to postpone the valuation discussion as you believe you can get a much better valuation later.
• Your startup does not have the time to find investors and negotiate a full financing round.
• You only wish to raise a small amount right now.

The main advantage is that there are typically no extensive negotiations, and the question about the company’s valuation (which can be difficult) is deferred to the future.

With a convertible loan, the money can be on the startup’s bank account within a couple of days (from sending out the agreement), compared to a couple of weeks with a financing round. Furthermore, due to the conversion element, the loan is typically not due for repayment but converts into equity at a later stage. For investors, it is a great opportunity to participate in the company’s growth as they get their loan paid back in shares of the company, which may be worth much more than the initial loan amount.

Under Swiss law, a SAFE is the same as a mandatory convertible loan. Our convertible loan agreements are typically a lot easier to understand and shorter than the y-combinator SAFE.