Convertible debt financing is a tried and tested investment structure for addressing the immediate capital needs of growth-stage and Pre-IPO companies more efficiently.
By issuing short-term Convertible Bonds that may convert into equity at an agreed upon milestone (such as a future financing round; an acquisition; or an IPO) or fixed maturity date, companies are able to reach an agreement with investors more quickly(Lead Investor not neccessary), as shareholding discussions are reserved for a later stage where potential investors have lower risk of investment loss.
WHY CONVERTIBLE BONDS
BETTER INVESTOR PERCEPTION
Investors and companies are not forced to negotiate and determine a valuation for the company at the point of investment, which is typically a time-consuming, expensive and difficult process in a traditional equity fundraise setting.
RISK ADJUSTED OFFERING
The typical duration of Convertible Bonds for a company in Pre-IPO stage is approximately 3 years (to conversion /repayment). The company can set applicable discount rates, valuation caps, milestone events and conversion rights to manage the risk and reliability of its investor’s investment and founder’s dilution.
REDUCED BORROWING COSTS
Compared to regular bank loans, convertible bonds typically confer lower borrowing costs than regular loans as the bond includes rights to allow repayment of the loan with equity interests (instead of actual cash) and at lower interest rates.
Worth of Deals in 2018
$5m - $50m
How Do Convertible Bonds Work?
Investors loan funds to a fundraising company in return for the issue of Convertible Bonds, which under the terms of the relevant convertible bond agreement, shall grant investors the right to subsequently acquire equity / ownership in the company at the milestone event, in lieu of receiving a return on investment in the form of repayment of their loan amount plus accrued interest from the company.
CapBridge aims to reduce transactional costs and time taken to complete deal negotiation by providing standardized Convertible Bond documentation* for the fundraising company’s reference.
*this sample Convertible Bond termsheet should not be construed as any form of legal or financial advice. Professional legal and tax advice should be sought to tailor the documents to the specific legal and commercial needs of your Company.
Liquidia Technologies, Inc. (Liquidia) commenced its US$22M Pre-IPO convertible financing with CapBridge investors in early 2017 and successfully secured commitments for funding within 3 months. Comparatively, another fundraising company that had conducted an equity fundraise with CapBridge during the same period for a similar amount took almost twice as long to close investments.
Liquidia subsequently leveraged the conversion by CapBridge’s lead investor of its Pre-IPO financing into equity to close a further Series D funding round just six months later, in January 2018. The success of Liquidia in completing two capital raises in such short succession helped to fast-track its route to an oversubscribed IPO on NASDAQ Capital Markets in July 2018.
1. View Sample Convertible Bond
Download a SAMPLE Convertible Bond termsheet provided by CapBridge, for your reference only.
3. Secure Potential Investors
Once you have successfully launched your Convertible Bond fundraising application on our Platform, you will be matched with investors that have expressed interest in your company. Interact with these investors through the platform to negotiate the terms of your Convertible Bond issuance.
4. Get Your Funds Immediately
Complete your Convertible Bond issuance quickly to secure your target funding amount without having to undertake a full valuation exercise.
Enter into the necessary legal documents (e.g. termsheet; convertible agreement) with investors to receive funds.