What does it mean when an investor say "I will give you $100k in exchange for 10% equity upon conversion"? What does upon conversion exactly mean in layman's terms?

  • 1
    I'm voting to close this question as off-topic because it belongs on money.stackexchange.com Aug 2 '19 at 16:24
  • @BlueDogRanch - I believe OP is talking about convertible debt; if so, it probably falls under the finance or equity tags. Aug 2 '19 at 20:06
  • Conversion of what, convertible stocks? Convertible bonds? Aug 7 '19 at 1:52
  • @ShazamoMorebucks upon conversion according to Fixed Stock Convertible Agreement. Any idea what that means?
    – Bisan
    Aug 9 '19 at 7:14
  • Paste the contract. We'll need to take a look. Convertible shares are preferred shares which may be converted into common shares. Why would you convert? Usually you can convert into a greater amount of common shares, or some other incentive. The excerpt you give us isnt enough. Show the contract Aug 9 '19 at 9:15

Sometimes people loan money to a company in a convertible debt transaction.

This means that if a certain event happens a certain amount of debt loaned to the company by an investor is converted into a certain amount of equity (i.e. stock or a membership interest) in a company.

"Upon conversion" when at the time that a debt to equity conversion is occurs because the circumstances calling for a conversion of debt to equity under the terms of the loan or governing documents of the company have occurred.

For example, I had a client whose company borrowed money to open up a restaurant that was converted from debt to equity upon the issuance of a liquor license to the company. If the liquor license had not been issued, the debt would have stayed debt. But, when the liquor license was issued, the debt was converted into shared of the company, leaving it with little long term debt and a substantial equity cushion that could more easily accommodate seasons variation in the business's income instead of having to make a large fixed debt payment every month.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.