Gaining Capital without Losing Control

From Forbes

A nice quick read from Jim Casparie, a founding principal of Angel Strategies (the first national organization for angel investors) about convertible notes.

As discussed, this is a great way for newish companies, which need an infusion of capital, to raise funds without having to prove that your growth will actually occur. An investor may be willing to lend money, with a belief in some upside. In the meantime you are paying them are regular debt return in interest. But at their option (in the case of good performance or when a venture capitalist is coming on board) to convert their investment to equity at a favorable price. In effect, you can price the conversion to get the maximum at the conversion date, say in two years when things are singing along! In the meantime the note should have an interest rate below what you would normally pay without this option.

Your CFO should be aware of these types of options as you approach the market for funds.