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Understand the model
Compare equity and convertible instruments before choosing.
Equity
You acquire a direct stake in the company, with the rights set out in the articles of association. Follow the business as a shareholder.
Convertible
You invest an amount that converts into participation at a future date, with the event, the form and the term defined in the agreement.
The table summarises the practical differences. In every offer, the deal document prevails over any summary published here.
What you receive
A direct stake in the company, with the rights set out in the articles of association.
An amount invested that converts into participation at an agreed future date.
Typical term
From 3 to 7 years, and it can run longer as set out in the agreement.
Conversion scheduled for 2 to 3 years, with the event, the form and the term defined in the agreement.
Participation in meetings
Yes, under the terms of the articles of association.
Not during the term. Participation begins at the conversion.
What happens if the company does not convert
The participation stays in place, with the same rights.
It depends on the agreement. There may be a repayment, a compulsory conversion or an extension of the term, on a defined event.
Main risk
Loss of value in the participation and low liquidity.
The issuer's credit risk until the conversion and dilution risk on the conversion date.
This comparison is generic and is meant to help you arrive with your questions ready. The actual terms of each deal, including conversion events, lock-up periods and dilution rules, are set out in that offer's specific document.
If your question is not here, our team answers it. It is cheaper to ask than to find out later.
See all the questionsCan I choose the model?
Generally no. The model is defined by the company and approved in the structure of the offer. What you can do is choose between deals that follow one profile or the other.
What happens if the company does not convert?
It depends on the deal agreement. There may be a repayment of the amount, a compulsory conversion on a set date, or an extension of the term on a defined event. Read the conversion clause before you sign.
Does equity pay dividends?
Only if there is distributed profit and a decision at a shareholders' meeting. There is no guaranteed income on equity participation. Confusing an investment with fixed income is the most common mistake.
Which model carries less risk?
Neither is safer by definition. The nature of the risk changes: in equity, it is loss of value and liquidity. In a convertible, it is the issuer's credit until the conversion. Compare the risk with your horizon and capacity.
