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Comment by mpc | Hacker News Reader

I'd love to learn more about how convertible debt (like this) works for early stage tech startups.

This is a very common structure for angel investments. Instead of trying to determine a value for your company at the seed stage they give you money and call it a loan. When you raise money at the A round the loan converts to a stock purchase at the amount they loaned you plus some percentage - 20% in this case, a little high but they are a brand name not some random angel.

For example they loan you $100k to get started. 6-9 months later you get a VC to invest $1MM at a $1MM pre-money valuation. The VC now owns 50% $1MM/$2MM post money and Spark owns 6% $120k/$2MM

But what happens if (especially in this environment) you can't raise money? Are you now legally on the hook to repay the loan?

I would assume that if you go out of business, as creditors they get their money back first during asset liquidation. But you aren't personally on the hook. (Part of why it's a good idea to keep your business and personal finances separate!)

Edit (think you were asking a different question) -- as I understand it, convertible bonds usually have a low interest rate and long duration, so you aren't supposed to feel like they need to be repaid immediately. If there's no future financing, but your business starts making money slowly, you'll eventually have to repay it, yeah.

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