Thinking Through the Pros and Cons of Convertible Notes in Hong Kong
One determining factor of the successful growth of a startup company is investments. These investments can be financial support from conventional venture capital, top-earning investors, or close friends and relatives.
Yet, investors are sometimes scarce. Also, there are several considerations to take before those investments appear in your business accounts. These are the main reasons why most business owners turn to convertible notes in Hong Kong.
If you’re thinking about how convertible notes can help your company in Hong Kong, cited throughout this article. These are the pros and cons of using convertible notes in funding your companies.
What Are Convertible Notes?
Convertible notes are fixed-rate bonds provided to a company whose terms and conditions enable the lender to incorporate them as the company’s regular shares at a defined time and a defined trading price.
In simple terms, convertible notes are acknowledged primarily as debt. Further, the rule allows for turning the original amount of lent money plus the accrued interest to invested shares.
Nevertheless, before actually heading to this path, it is a must to understand the benefits and potential pitfalls of this sort of funding. Doing so will help you decide whether convertible notes are the right funding choice for your business. Think through the pros and cons of convertible notes listed below.
The Pros of Convertible Notes
Convertible notes in Hong Kong financing is easier and faster from a legal point of view. Moreover, it is surely affordable and easy to implement.
Even so, convertible notes prevent putting a market value on the company. This can be especially useful for seed-stage businesses that hadn’t sufficient operating experience in establishing good market value.
Further, convertible notes are viable choices for bridge-capital or high inter-round investments.
The Cons of Convertible Notes
On the other hand, if future equity share cycles are not finalized, convertible notes in Hong Kong will stay as debt. That means it should be redeemed and would probably lead to financial issues for fragile seed-stage businesses.
Necessary prevention may be established to negate the convertible note’s objective and then end up as a traditional equity session, which takes much time and energy.
Furthermore, for business owners to moderate increasing future equity, they should stabilize the target price provisions such as the exchange in a reduced price and market value cap.
When using convertible notes as seed capital, the best piece of advice you could take is to recognize all possible scenarios’ effects. Take time to think about what comes if you can’t raise a significant amount of money. Also, consider what occurs if things spectacularly go well, and you have to raise additional money far beyond the value limit.
If the points on the pros and cons of convertible notes listed above sound too overwhelming for you, consult Hong Kong Incorporation Service Providers to help you out.
One highly recommended in this field is 3E Accounting Hong Kong. They provide a handful of ways to start going for options that have already been effectively used over several occasions. The company’s reputation could speak for their performance and vouch for their credibility.
Essentially, completing an investment deal without the help of a professional in the field of fundraising for startup companies is not a good idea. Thus, it is advised that startups entrepreneurs be in partnership with a 3E Accounting Hong Kong specialist. The specialists could help you in understanding how to effectively and productively address your fundraising objectives.