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Would Mark Suster recommend just biting the C-corp bullet, creating an ESOP, and issuing stock to early stage investors for a $350k AA-1 seed round raise or can convertible debt still offer an edge in this context?

  • Posted by admin on March 8, 2018

I think it doesn’t matter for a $ 350k round.

Debt vs equity in 2018 for smaller rounds — who cares. We have bigger fish to fry.

Debt with a “cap” of $ 2m pre is probably a slightly worse deal for both founders and investors than a “priced” equity round at $ 2m pre for the reasons Mark highlighted. The investors get full antidilution protection (= worse deal for founders), and also, the investors have no idea what they are buying or exactly how much (= worse deal for investors).

But if you are hunting unicorns, it doesn’t matter too much for small pre-seed rounds anymore.

So my suggestion:

  • Do whatever the investors want (debt vs. equity), if they are driving the discussion.
  • Do whatever the founders want, if the round is way oversubscribed and the round is relatively small (<$ 1m total).

It’s when the round is large and you are still trying to do debt that’s where the real friction comes up these days.

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