It`s a complex question, but the answer is something like “they could theoretically, but probably not.” If your convertible bonds have come to arreurant and mature, if the holders have the right to demand repayment and have asked for repayment, and if you do not have the money to pay them, they could in theory (alone or with other creditors) attempt to compel the company to a procedure that may lead to the company`s assets being sold or distributed to satisfy creditors. The reality is that this type of procedure is generally expensive and has uncertain results, and we rarely see, if so, that investors in companies take aggressive steps to do so at an early stage. Start-up investors understand the real possibility of losing their investments and are generally fairly flexible and cooperative in identifying and supporting alternatives that have a better chance of preserving value and relationships. VIMA also has a glossary to harmonize the meanings of jargon and terms used in the venture capital industry (VC). Several investors and industry organizations have attempted to put in place tracking sheets for convertible bonds and equity cycles. Y Combinator, a well-known startup accelerator program that has provided hundreds of startups with start-up financing, has developed the SAFE (Simple Agreement for Future Equity) with the aim of creating a standard seed investment model that solves some of the problems they have seen with convertible bonds. You`ll find a link to safe documents here: www.ycombinator.com/documents/#safe Since, in most cases, you don`t know how many shares will convert your convertible debt, most companies don`t include convertible debt in their scoreboard. You should be a ledger of the notes issued (list the holder of each note, the main amount and the date of the issue). I would recommend that you keep the Ledger in Excel so that you can easily calculate accrued interest. Keep your heading table on a tab and your note-ledger in the next tab – so that when it`s time to compile your A-Cap Series table (download our Pro Forma Example scoreboard) that reflects the conversion of your notes to equity, you`ll have all the information in a folder.
Many law firms (including Cooley) have also licensed software to track the tables (including the change of sola), and there are third parties like Carta who will do so as well. Convertible bonds have become increasingly popular in the world of startup financing, especially in start-ups. However, before following this path, it is important to understand the potential pitfalls of this type of financing and to understand whether this is the best choice for your business or not.