Startups generally have two ways that they structure their funding round – Equity and Convertible Debt.

There are two primary structures:

• Equity. Investors get a specific percentage of the company at the time they invest.
• Convertible Debt. Often used in the formative years of a startup when the Valuation is difficult to set. Investors “convert” their investment to equity at a later time (typically the next Funding round) when a Valuation can be more easily set.

Most Founders (and investors) understand equity, so we’ll spend a fair amount of time explaining how Convertible Debt has become so popular for startups as an alternative.