Convertible Debt

Ari Newman is an entrepreneur, mentor, investor, and a friend. He works at Techstars where his responsibility is to ensure that the connections between alumni, mentors, and staff are as robust as they can be – helping entrepreneurs “do more faster” day in and day out. His most recent company, Filtrbox, participated in the inaugural Techstars class (Techstars Boulder 2007) and was a win for all parties involved; Filtrbox was acquired in 2010 by Jive Software (NASDAQ: JIVE). ...

Last night I gave a talk hosted by SVB at their Palo Alto office. It was part of the “Never Ending All Old Is New Again Venture Deals Book Tour.” I had a ton of fun talking to and answering questions from about 75 entrepreneurs who – at the minimum – enjoyed eating the great food and wine that SVB provided on a luscious evening in Palo Alto. Oh – and I signed a bunch of copies of Venture Deals. ...

Recently, several entrepreneurs and investors have asserted to me that they don’t think the terms on a convertible debt deal matter much. I was perplexed by the statement and asked each of them to tell me more. In every case, the person hadn’t really thought through the issues. Rather, they were just spouting what they believed was conventional wisdom about terms for seed deals. In one of the entrepreneur cases, I explained how it was likely that they were going to be on the wrong side of the valuation discussion in the next financing based on one of the terms. In one of the investor cases, I explained the difference between a 2x return and a 15x return – using a real example – based on the way the note was written. And in a third case a separate potential angel investor in the deal brought up a specific term that was important to him that addressed a real concern. ...

Before we invested in MakerBot , we bought and assembled a Thing-O-Matic. When I say we, I mean me, Jason, and Ross. It took us about 20 hours (Jason and I did the first half; Jason and Ross did the second half) and was a blast – think of it as an adult lego project. Our Thing-O-Matic has been steadily printing stuff – you can play a game of chess with our Thing-O-Matic pieces. the next time you are in my office. ...