Convertible Preferred Stock and Convertible Debt

Keywords

startup financing, convertible securities, preferred vs debt

Abstract

Convertible preferred stock and convertible debt arrangements are widely used in startup financing. Nearly all VC-led funding rounds (from Series A on) are completed via preferred stock agreements. During seed financing, however, many startups use convertible debt as an alternative to preferred stock. Many angel investors and founders have strong opinions about using one form of financing over the other, but neither type of security is inherently superior.

Learning how both financial instruments work and their potential effect on your company is essential preparation for raising funding. (For more information on seed financing and equity rounds see our article entitled The Stages of Startup Financing.) This article provides an overview of convertible preferred stock and convertible debt while addressing common questions related to these securities along the way.

Original Publication Citation

Convertible Preferred Stock and Convertible Debt (D. Jepsen and T. J. Wilks), IPOhub, October 24, 2018. (8,141 unique views as of Jan. 13, 2023)

Document Type

Peer-Reviewed Article

Publication Date

2023

Publisher

IPOhub

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

Link to Full Text

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