A Convertible is a type of equity funding round. Companies generally raise capital through a Convertible as part of their funding strategy if they’re looking to get funds quickly, opening up equity to their valued community, or in the process of securing cornerstone investment, and have a larger funding round coming up in the foreseeable future (roughly within six months).
A Convertible is very similar to a regular equity round on Crowdcube. However, the company doesn’t set a valuation or a share price. Investors pay an amount (a multiple of £10).
At a later date, the Convertible amount is converted into shares, usually when the anticipated follow-on funding round is completed. Generally, a company will complete a follow on round within a certain time period after the Convertible round. The follow-on round can be on Crowdcube or it could be a VC round etc.
If no follow-on round happens your investment will be converted into shares by the agreed long-stop date and at an agreed long-stop valuation. All details will be confirmed to you when Crowdcube issues your shares.
Generally, by investing in a convertible round, you’re investing early in that company and the value of your shares are greater than those in the next follow on round.
What is long-stop date and long-stop valuation?
A Convertible converts into shares if certain trigger events happen. The most common trigger event is a follow-on investment round. If no trigger event happens then your investment will be converted into shares on the agreed long-stop date and at an agreed long-stop valuation. You can check these terms in the convertible terms statement in your portfolio.