Do angels usually invest in a company for equity or convertible notes?

QUESTION:

I have a question about angel investment. Is it more often the case that angels will invest in a company for equity or for convertible notes? Also, does this differ between institutional angels vs. individual angels?

ANSWER:

Larry Chaityn

by Larry Chaityn, President, Keiretsu Forum NY

It depends on the stage of your investment. For example if this is your first round, many angel investors are looking for equity.  Convertible notes are often used during a “bridge” round.

Here’s a good definition:

A convertible is a type of bond that the holder can convert into shares of common stock in the issuing company or cash of equal value, at an agreed-upon price. It is a hybrid security with debt- and equity-like features. Although it typically has a low coupon rate, the instrument carries additional value through the option to convert the bond to stock, and thereby participate in further growth in the company’s equity value. The investor receives the potential upside of conversion into equity while protecting downside with cash flow from the coupon payments.

I’ve not heard of institutional angels. There are angel groups, like the Keiretsu Forum, and individual angel investors.

Hope this helps.