BRM Investment Options

A convertible note is a short-term loan that a company receives from an investor, with the understanding that the loan will be converted into equity (shares) in the company under certain conditions, known as “trigger events”. These trigger events typically include a future funding round, an acquisition, or a company sale. Convertible notes offer a flexible way for startups to raise capital, especially in the early stages when valuing the company is difficult. 

The main advantage of a convertible note to an investor is that it provides a debt-like instrument with the potential for equity appreciation, while also offering a cushion in case of liquidation. This means investors can earn interest and be repaid like a loan, but also have the opportunity to convert to shares if the company performs well. 

Equity upside:

Investors can choose to convert the notes into shares if the company’s value increases, potentially generating significant returns.

Liquidation priority:

In case of company liquidation, convertible note holders typically have a higher priority for repayment than shareholders, reducing downside risk.

Flexibility:

Investors can choose to convert their notes to shares or simply be repaid, providing flexibility in their investment strategy.