Late last year we were happy to host a couple successful programs aimed at giving back to our startup community.
One of those programs was called Adopt a Startup. We fielded over 50 applications of seed fund stage startups to find one we believed in. The prize was technical help from our talented engineers. We chose to work with Stand In, a Portland-based mobile app simulation product, because of their solid team and scalability of their technology .
We also invested in our first two QL Convertibles, or convertible note projects. Let’s talk more about that…
What is a convertible note?
Convertible notes are one of the most widely used forms of seed funding. If you’re not familiar with the concept of a convertible note, I’ll do my best to explain it in my layman’s terms: The note is a recording of debt (similar to a loan) that is owed to a third party. It represents the right to compensation in the form of equity (or a percentage of ownership) once there is more history to determine a fair amount.
As an example, Sally invests $50,000 in Company X to get them operational. When, in a few months, Company X has some more clout, it receives a qualified funding round, and that $50,000 Sally invested originally converts into equity in the company proportional to the size of the investment. How much equity does Sally have? Well, that will depend on how much the company is worth after the funding round has closed. If Company X got $4 million, that would make the Sally’s note worth 1.25% of the company.
What constitutes a qualified funding round is part of the terms of the note, but is typically a dollar value ($1 million or higher, for instance). There may also be a deadline that triggers conversion if a qualifying round hasn’t happened in a determined time frame (2 or 3 years, for example).
How do QL Convertibles work?
We build custom web and mobile apps. To do that, we charge a premium that is often out of reach of early-stage companies and startups. With QL Convertibles, we can negotiate a part cash/part convertible note deal that delivers our same, great service while making it accessible to a growing company.
Sound like something you would be interested in?
We loved working on the projects where we now have an investment in their ultimate success. When our clients win, we win, and you couldn’t ask for better incentive in a partnership than that. In fact, we liked it so much that we’re now looking for our next convertible note project.
If you need some outstanding development help and want to have a shop work with you that’s invested (literally) in your future, check out our work or fill out the form below.