Question

Which of the following is a short-term debt that converts into equity, often used by seed investors investing in startups?

A Bond Correct Answer Incorrect Answer
B Convertible note Correct Answer Incorrect Answer
C Etops Correct Answer Incorrect Answer
D Shares Correct Answer Incorrect Answer
E Commercial paper Correct Answer Incorrect Answer

Solution

A convertible note is a form of short-term debt that converts into equity, typically in conjunction with a future financing round; in effect, the investor would be loaning money to a startup and instead of a return in the form of principal plus interest, the investor would receive equity in the company.

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