A convertible preferred stock:
O converts at the option of the company.
O automatically converts after a certain number of years.
O converts to debt if the company does not succeed.
O converts to common equity at the shareholder's option.
Question 29
A convertible note:
O operates like a convertible preferred stock.
O is like debt unless the entrepreneur chooses to have it convert to equity.
O allows the investor and the entrepreneur to avoid pricing the round.
O requires some form of valuation cap in order to be fair to the entrepreneur.