We invest up to 100k in a convertible loan, typically in 2 tranches.
Yes, we are happy to chat with you about if it makes sense to leverage additional funding from the L-Bank.
Yes, depending on the situation, we can take the “lead investor” role and help you put together a larger pre-seed round.
In most cases, we offer a standard convertible note that allows us to “lend” you money that will convert to shares when your company grows, exits, or raises a priced round. For zebra-like startups who are less likely to raise priced rounds in the future, but who still have a strong business plan, we have additional vehicles we can employ.
Our standard convertible note includes a 4% interest rate and conversion with the lower of a 2M valuation cap or 25% discount on a pre-money valuation of the priced round. The loan is unsecured.
The government generally views convertible notes as a “loan” on your company’s balance sheet that will “convert” at some point; therefore, it is expected that an interest rate will be included. Additionally, from the investor’s perspective, an interest rate makes sure that the investment gains certain tax qualifications. Most convertible notes have at least a 6% interest rate. Ours is 4%.
The valuation cap in a convertible note is a “pre-valuation” that prevents the investor’s loan from converting into a lower percentage of shares than is fair for the risk they took by investing in a startup with little traction, especially if the startup is extra successful. As a simple example, if the first investor gives a 100k convertible note with a cap of 2M euros to a very early-stage startup, and the second investor buys shares in the startup 2 years later valued at 10M euros, the original investor’s note will convert to 5% equity, and not 1% equity.
The discount rate is a percentage that will be applied to a startup’s valuation when the convertible loan converts during a priced round. This provides the investor with “discounted shares” if a startup is not super valuable or doesn’t significantly exceed a valuation cap. Typically, investors take the lower of either the “discounted valuation” or the “valuation cap” when calculating how the note will convert to shares. However, the discount rate does NOT apply to the valuation cap itself. For example, if a startup reaches a valuation of 1.2M with a cap of 1M and a discount rate of 25%, the investor has the option of either converting shares at the cap of 1M or at 0.9M (25% discount of 1.2M). The investor will generally pick the lower of the two options. The investor can not convert at 0.75M as the discount rate does not apply to the cap.
The conversion of debt to equity happens when a “qualified financing round” occurs, or a forced conversion clause is activated.
The Investment Committee is a group of experienced investors/stakeholders who assist the Venture Studio in evaluating startup applications. More importantly, the Investment Committee actively supports the startups that receive funding by leveraging their network and connections to potential partners, customers, and follow-on funders.
Yes. Our team notes your application details, including any reasons for why your application does not move forward and provides these to help you improve and grow from the experience.
Due Dilligence is a term for the broader process that the Venture Studio and investors use to evaluate if a startup would be a good fit—both for an investment and our services/community.
Yes. In addition to “soft evaluations” (your pitch, how you present yourself, characteristics of the team, business model, etc.), we also sit down with you after the investment committee gives a “Yes” decision to make sure there are no major red flags that would prevent a deal from going forward.
In general, we are looking for teams that have at least 2 founders. One of the co-founders should have a technical background or deep industry experience. All founders should be strongly committed to the startup and demonstrate passion, wisdom, a strong work ethic, and perseverance.
While our expertise (and therefore our startup focus) is in B2B companies, we are open to solid applications from startups with non-business customers. Feel free to submit an application or reach out directly to our team to check.