Back in 2010, when we were running StartVI, we piloted the idea of Convertible Equity. VentureBeat has an article about this right now, and a sample term sheet.
“Convertible debt, the old convertible notes once used as bridge loans for more mature companies, became popular with angel investors in the years after the financial crisis. According to Ressi, by 2011, over 50 percent of angel deals were done through convertible debt.
Ressi told me that there are benefits for founders beyond being able to call it equity instead of debt. ”If you are loaning a new company money, it makes startups insolvent from a balance sheet perspective,” he said.