WorksheetsConvertibles - interactive quiz!
Total questions: 10
Worksheet time: 5mins
Q1: LE comment - “We need to raise £650k for this round to have 12 months runway, with £300k pre-committed”.
Is there anything you’d challenge?
No sounds fine – we’ve launched campaigns with less than 50% pre-committed before
We’d need to increase the raise size to hit the £750k so we ensure it converts
The funds raised in this round shouldn’t be included towards the threshold
The threshold is too low
Q2: LE comment - “We want this to be run as an EIS eligible campaign, but we haven’t yet gotten Advanced Assurance”
How would you respond?
ASAs can’t be EIS eligible as they’re debt instruments
We would need Advanced Assurance as a pre-condition to launch
We would need Advanced Assurance as a closing condition
It can’t be EIS as it’s converting into preference shares
Q3: LE comment “We want to incentivize Seedrs’ investors coming in on the round – can we set a valuation cap for Seedrs only?”
How would you respond?
We need to raise on the same terms, so if the directs don’t have a Val Cap then we need to match
Definitely wouldn’t hurt, but the likelihood is the ASA will convert at the Longstop Date. So it may not be that much of a cherry
Definitely! The lower the better!
Yes, but it should be no more than £2m to match the longstop valuation
Q4: LE comment - “Valuation Cap aside, how else can the terms be made more attractive?”
What would be your first suggestion?
The default valuation can be decreased
Decrease the equity raise trigger
The discount can be increased
The longstop date can be extended, so that there’s a greater chance the ASA will be triggered by a new raise
Q5: BD has flagged this one on Investment Committee and asked if we can work with it. £100k pre-committed, aiming for £50k under nominee.
What should be your response be?
We’d them to raise on the Seedrs ASA if we’re to take this forward
No need to respond – it’s a legal query so let the legal team come back on this
The interest rate is too low, they need to increase this or we can’t work with it.
Repayment mechanisms are a regulatory issue for us.
Q6: It's now a T1 raise. LE comment - “Our lead investor wants to be paid their interest on a monthly basis, but we can repay all / part of their loan at any time.” What's your response (multiple)
That’s great! It’s not always that we can give investors an immediate return on investment
The Company having the choice to repay at will is a regulatory problem for us
Monthly payments is unnecessary and too much admin for us to be worthwhile
Fine in principle, but the interest rate is too low so we need our interest rate to be higher
Q7: The LE was unwilling to change any of the commercial terms, but the campaign isn’t performing very well.
What do you think the KEY reason may be?
The longstop date is very long – investors tend to push back on that
The discount is low – given the 3 year longstop date, it could be a bad result
Lack of a valuation cap is making this too risky
Bespoke convertibles can be too confusing and off putting for the retail market
Q8: BD has asked “Can we reflect this in an equity round?”.
What should be your response be (multiple choice)
No – convertibles can never be reflected in equity rounds as they’re on different terms.
Yes – even though there’s a discount, we can just price the round at a 20% discount to make sure we’re on the same terms
It depends– if the discount is on the next round share price, then it won’t work no matter what price we set
Why has the Co entered into ASAs for an equity round? Suggest they’re terminated and issued straight equity instead.
Q9: The discount is dropped, and the ASAs will covert at the round price. The LE now has £300k investing under the ASAs, and looking to set min target as £200k under the nominee. Any issues with this?
No – They have loads of runway, pre-reg looks good, £300k should be achievable
Yes – we can’t rely on investors’ intentions, the ASAs need to be terminated and investors issued equity to be sure
Yes – we need to set the minimum target at £400k, otherwise there’s a risk the ASA won’t convert
Yes – the pre-committed investment doesn’t count towards the trigger, suggest the SeedFast is varied to make sure it is.
Q10: You’re sent all the ASAs by the LE - there are 12 ASAs, 4 of which were entered in a period between 4-5 months ago.
Might there be any issues here?
Yes – if they hit the longstop some conversion prices will be better than our share price
No – the default share valuation is the same as what we’ve set for the round (£4m for each) so even if they convert at the longstop, it’ll be at our share price
No – we’ll go live in the next week or so, so well within the 6 month reflection window
No – even if the share price does come down, we can just change ours to match once we’re live
