In June, Eyedeus Labs, creators of Groopic, raised seed money in the form of convertible debt financing from Kima Ventures. Convertible debt financing is preferred by Kima Ventures due to the speed and cost effectiveness of the transaction. Simply put, convertible debt is a fancy loan with conversion clause. Question is, for Pakistani startups, is this a good deal?
It’s a loan (debt) that converts into equity (ownership) when a qualified round of financing like Series A (conversion) takes place in the foreseeable future. Raising money using convertible debt financing is quick, simple and doesn’t require evaluating the company.
Raising another round
Eyedeus will need to raise another round of financing before the debt matures in 18 months. This adds pressure but I think Eyedeus will be able to raise another round with ease and well before the deadline. It’s common to re-negotiate deadlines so it’s not really written in stone.
Is convertible debt financing a good deal?
For Pakistani startups, though there is a risk that the loan will mature without qualifying round of financing, convertible debt financing is a good deal. As mentioned earlier, it’s quick and cost effective. Plus, it allows the startup to grow (make key hires) without evaluating it too high or too low.
Agree? Disagree? Chime in below.