Convertible loans offer Swiss startups the opportunity to efficiently raise initial investments from family, friends, and early-stage investors.
We support you by advising you on important contract points such as "Valuation Cap", "Discount", and "Conversion Terms", guiding you through negotiations with investors, and drafting suitable investment contracts.
Benefits Overview
Quick Negotiations
Since a future company valuation is being considered, negotiations with investors are often completed more easily and quickly.
Cost-Effective Financing
Convertible loans are well-known in practice and only need to be specifically adapted to the concrete situation. This allows startups to raise investor funds in a cost-effective manner.
No Current Company Valuation
One of the biggest challenges in traditional equity financing in early stages is the valuation of the startup. Since convertible loans defer the valuation to the future, founders can usually raise investments earlier and on better terms.
Valuation Cap and Discount
Instead of a current valuation, a maximum valuation (Valuation Cap) or a discount (Discount) of 10% to 25% on the valuation in the next financing round is agreed upon with investors.
Initially No Shareholder Position
Convertible loans are essentially debt capital, and thus investors are initially creditors. The equity structure and the shareholder composition remain unchanged for the time being, which can provide founders with certain flexibility in the early stages.
Shareholder Position After Conversion
Investors receive shares in the company and the associated shareholder rights (information, voting, and dividend rights) only after the conversion of the convertible loan.
Startup-Friendly Conditions
Convertible loans offer startups the opportunity to raise money without having to give up equity or perform a current company valuation.
Investor-Friendly Conditions
The structuring of convertible loans as debt and the possibility to invest in early-stage startups at improved conditions thanks to valuation caps and discounts offer investors various advantages.
What is a Convertible Loan?
Financing Instrument
Description
A convertible loan (Convertible Loan) is a financial instrument that allows investors to provide capital to a company in the form of a loan that can be converted into equity at a later point in time. This means that instead of a fixed repayment in the future, the investor receives shares in the company.
Scope and Terms
Capital Provision
The investor grants the startup a loan, which is initially recorded as debt on the company's books. The contract specifies the conditions for the later conversion to equity.
Conversion to Equity
The loan is converted into shares of the company at a specific event, such as during a future financing round. This usually occurs at a pre-agreed discount on the then-current company valuation ("Discount") or at an agreed maximum valuation ("Valuation Cap").
Interest Payment and Repayment
Many convertible loans include an interest payment or a repayment option if there is no conversion. However, most investors aim for conversion into equity to participate in the long-term success of the company.
Potential Challenges
Tax Pitfalls
In Switzerland, convertible loans can have tax implications, particularly concerning the conversion of debt into equity. It is recommended to carefully examine the tax consequences to avoid unwanted burdens.
Issuance of Shares
When converting a convertible loan into equity, new shares are issued, leading to dilution of the existing shareholders' shares. Founders should be informed about the dilution effects and their consequences as part of scenario planning.
Uncertainty in Conversion
Although a conversion is the goal, there is no guarantee that it will actually take place. This can present challenges for investors during times of economic uncertainty.
Our Packages
Choose the package that suits your starting situation.
Lose-Win Guarantee
Next steps
Step 1
Filling out the form below & arranging the kick-off meeting.
Step 2
Kick-off meeting
Step 3
Legal assessment and advice
Step 4
Document creation and if necessary, Scenario Planning
Step 5
Feedback round and implementation
