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April 09, 2006

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Bradley Twohig

What about debt covenants? I would imagine a newly formed company with limited historical cashflow information would have debt covenants that could preclude the company from taking on debt. Anything tied to profitability would make using debt financing difficult.

Bradley Twohig

Scratch that I was thinking about traditional debt and not a convertible from a private equity shop. Its monday.

Bruce Boston

On the topic of "raising 'friends and family' money"......

Recently, I have been in contact with the SEC talking about a number of issues. In that process, I got to listen in on today's SEC Meeting by the "Advisory Committee on Smaller Public Companies".
I have listed a Podcast of the call here: Podcasting the SEC

I think it's pretty clear that there is both domestic economic pressure and global economic pressure to review the current ways that we are pooling funds at the early stages, here in the USA, and ask if there is a better way to do this.

It's also clear that there is a very open forum through which interested people can express their input on the topic at hand.

-bruce boston
QuidStreet.net

arieanna

Thanks for trying Q. :)

Brian Magierski

Brad,
Thanks for adding to this discussion. I asked this of Josh as well, but wanted to get your thought as well. In the event of going with the convertible note structure, how does one figure out the conversion price for the event where the startup is acquired before a funding event? It seems this needs to be for a percentage of the deal or company (fully diluted) so as to not cap upside potential. However, wouldn't this just imply a valuation (that may and likely will be different from the valuation that the investors will convert into at the funding event). It seems the differences in those valuations would be tough to reconcile and that an actual price is theoretically being set on the seed round. Thus, the main benefit of the convertible debt path is simplicity and reduced legal cost.

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