

Ask HN: Re: $150K conv. debt for YC - what if company raises no more money? - yakto

Just curious regarding the terms of the $150K debt from Yuri and RC: what happens if the company never raises a follow-on round, and a) there is plenty of cash flow to pay back the debt, or b) there is insufficient cash flow to pay back the debt.<p>Anyone know when the debt comes due, what the interest rate is, and if payback terms are pegged to cashflow somehow?
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bkrausz
A blogger somewhere saw the terms of the note and commented on it (don't
remember what site). Basically if the note converts for any reason other than
an equity round it does so at a $5M cap.

Even more interesting: that $5M cap also applies if the terms of the future
equity round don't allow for re-upping. So basically, if StartFund can't re-
invest in the next round, they get better terms on the note. Really smart.

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minalecs
I really don't know the answer to this question but my best guesses

a) At some point you would do a real valuation on your company and debt would
be converted to shares or some type of equity. Investors would hope that you
become profitable and investors could sell shares on secondary market or
company would eventually buy back shares.

b) If no cash you would eventually close shop, and I imagine if you dissolve
your corporation nothing happens. Like going bankrupt and if you have no money
theres nothing to collect on and nothing happens. I guess its possible to sell
what assets are available.

Thats why investment is a risk.

