One of the most common methods used to invest in early stage startups is something called a convertible note. A convertible note is a loan that converts into equity after the company has a bit more operating history under its belt and there is more information available to establish a fair price.
Convertible notes are often used for seed rounds (the first investment money taken by a startup) because they delay the difficult task of deciding how much the company is worth to a later point in time when it is easier to do so. How much would you say that 2 software engineers and a prototype is worth? How would that change if there was an MBA on the team? By investing through a convertible note, these decisions can be delayed until a company has a track record of users or customers that make it clearer what a fair price should be.
We'd love to get your feedback on how to improve these resources and your suggestions for any articles that you'd like to see featured. Contact us with feedback and suggestions on [email protected]