Convertible Debt vs. Equity: A Practical Guide for VCs and Founders
Jason Lemkin examines the practical implications of choosing between convertible debt/SAFEs and equity financing, drawing on real examples of how later-stage investors can manipulate convertible terms. He provides decision rules based on investment size and outlines the pros and cons of each approach, emphasizing that corporate governance and investor engagement matter more than commonly discussed.
Metrics in this report
1$
per share
aggressive term allowing company to repurchase convertible notes at par value regardless of valuation
$1,000,000$
individual investor
below this amount, founders do not need to worry about debt terms
1000000000$
specific case
company with rewritten convertible terms exited at $1B+ 5 years later
800000$
specific case
investment where terms were later manipulated by Series A VC
20000-50000$
range
typical cost for Series Seed equity documentation
$2,500,000$
aggregate
when exceeded, should convert to equity documentation