More cash-crunched companies turn to convertible notes – TechCrunch

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These promissory notes, which are structured as debt that convert into equity upon a specific event like a certain date or the closing of a priced investment round, are increasingly being adopted by established companies that have already raised millions of dollars in venture capital.
Convertible notes allow companies more time to develop their businesses before deciding who gets what.
In recent months, however, more established companies that have already raised priced rounds have raised money via convertible notes.
According to the WSJ, Juul Labs, the e-cigarette maker, recently raised more than $700 million in convertible debt to fund its operations.
a venture-backed nine-year-old, New York-based company that provides workspace to creatives is in the process of raising $15 million in convertible debt, shows an SEC filing.
And a crypto exchange that has raised several rounds of venture funding, LedgerX, just closed on $3.8 million in debt.
Convertible notes are a convenient band-aid, giving companies a little breathing room to fix their products, search for possible buyers, or move into a different space if what’s plaguing them applies more to their industry than their specific products or services.
While Juul once seemed like such a sure bet that Altria purchased a 35 percent stake in the company for $12.8 billion, Juul’s future is now a lot less clear.
On January 30th, Altria marked down the value of its stake by $4.1 billion, and it now values the entire company at just $12 billion, a 68 percent decline from the original valuation that Altria ascribed to Juul when it invested.
According to the WSJ, the $700 million will only convert to equity if Juul’s next round values the company between $10 billion and $25 billion.
If the valuation of the next round is lower than $10 billion or higher than $25 billion, the $700 million will be treated as debt.

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