Interesting idea, not sure if I understand it though.<p>So you "loan" money in exchange for "equity" and you limit the potential return on that money if the seed round is larger than a particular valuation.<p>It feels like a priced equity round that is held to just before the price gets set by the lead investor.<p>Why would I do this rather than price it? Or perhaps more importantly at the seed round stage how does this affect the LP's ownership calculation?
Yokum's blog post on the instrument is here: <a href="http://www.startupcompanylawyer.com/2012/08/31/what-is-convertible-equity-or-a-convertible-security/" rel="nofollow">http://www.startupcompanylawyer.com/2012/08/31/what-is-conve...</a><p>I don't think that investors call debt at maturity in practice (in general - I have heard of one Midwest-based investor that used default to pretty well screw the company), but this reduces that risk.<p>Also, it appears sets the date for capital gains tax treatment to be earlier, which is a win for the investors. (Although the "probably" qualifier in TechCrunch and in Yokum's post scares me a little.)
Calling it "convertible equity" is a farce... it should be called lazy equity. This isn't a break-through in investment vehicles and no one should be drawn in based on a check-list of convertible debt risks.