How to Use Convertible Notes to Raise Funds For Your Business

How to Use Convertible Notes to Raise Funds For Your Business

businessman behind laptop writes notes on a spreadsheet while talking on a mobile phone

Getting access to capital can help you grow your business, but it can be tricky to fundraise if your startup is still in its early stages. Many institutional investors are reluctant to put money into companies that don’t have at least some history of revenue or growth. Fortunately, you have options. One of the most common ways early-stage companies raise money is with convertible notes.  

What is a convertible note?

A convertible note is a type of investment that lets founders raise money from investors without having to conduct a formal company valuation first. Unlike a priced round, which is an equity investment based on a valuation, a convertible note is a short-term debt that has the potential to convert into company equity at a later date. 

Though valuations can give you a better idea of your company’s worth and growth potential, they also force you to put a price on your stock. That’s why many founders like the idea of convertible notes; you have more time to see how your company will evolve before setting a price per share. 

How does a convertible note work?

If an investor believes in your company, they can give you a loan in exchange for a note in the form of convertible debt. The note then turns into shares of preferred stock upon a qualifying event or transaction, like the closing of a Series A round of financing. 

Convertible notes are designed to reward early investors for their risk, which is why they typically come with a valuation cap or conversion discount. 

A valuation cap sets a maximum valuation at which an investor’s money can convert into equity. This cap—which determines the company’s price per share—holds true for convertible noteholders even if later-stage investors pay a different price. 

A conversion discount, on the other hand, gives investors a discount on the price per share when their note converts into equity. That means they can purchase shares of preferred stock at a lower price than investors who come in during later rounds. 

If a convertible note includes a valuation cap and a conversion discount, the noteholder typically gets to choose whichever advantage gives them the lowest price per share.

Because a convertible note is a form of debt, it also comes with terms that help protect the investor, including a fixed interest rate and maturity (or expiration) date. Convertible notes typically accrue interest at a rate of 2-8%, depending on your location. 

If a convertible note hasn’t already converted to equity by the time the note expires, you have to pay back your investor’s principal investment plus interest. Of course, you can always opt to extend the maturity date, but you have to get your investor’s permission to amend the note. 

SAFE vs. convertible note

Many people look into SAFEs as an alternative to convertible notes. SAFEs and notes are similar in that they both convert to equity, but the process is different.  

SAFE stands for Simple Agreement for Future Equity. SAFEs convert into shares of stock in a future priced round. Unlike convertible notes, which don’t convert into equity unless the company raises a specific amount of capital, SAFEs usually convert into equity during the next priced round regardless of how much money your company raises. 

Another difference is that SAFEs aren’t a form of debt; they’re considered a warrant instead. Because of that, SAFEs have no maturity dates or interest rates, which can be better for founders. However, they do usually have a valuation cap or conversion discount investors can take advantage of. 

Both convertible notes and SAFEs are good options for founders who want to get funds quickly. However, convertible notes tend to have more protections for investors, which can make them an easier sell. 

Advantages and disadvantages of using convertible notes for financing

Like any fundraising strategy, there are pros and cons of using convertible notes to finance your company’s growth.

Advantages of convertible notes

  • You save money and time. A convertible note term sheet is shorter and more straightforward than a priced round term sheet. When you don’t have to negotiate as many terms, you save time and spend less in legal fees. 
  • Notes are simple. You can change the terms of the note fairly easily if you need to.
  • You retain control over your ownership. You don’t need a lead investor to help secure more funding.  
  • You may not have to conduct a valuation. If you want more time to see how your company will grow, you can hold off on a valuation until the next round of fundraising. 
  • Notes appeal to investors. Investors may be more willing to take a risk on your company because they’re protected by the note’s valuation cap or conversion discount. 

Disadvantages of convertible notes

  • You have to be careful of dilution. If you raise too much money using convertible notes, or if the notes convert at a low valuation or with a significant discount, your shares of stock as a founder may be diluted. 
  • You may have fewer investment opportunities. Without a lead investor to drum up interest in your company, it could be difficult to find and secure other investors. 
  • You could still end up doing a valuation. If you decide to use a valuation cap on your convertible notes, you will likely have to conduct some type of pre-money valuation, which could force you to put a value on your company earlier than you wanted to. 

Financing your company

Fundraising for your company can be complicated, so it’s crucial to gather as much information about your options as possible. In addition to consulting your accountant and business lawyer for advice, make sure you take time to review your goals, discuss strategies with your team, and read up on the fundraising market for your industry.  

Convertible notes might be a great option for you to raise money during your seed round if:

  • You want to fundraise quickly. 
  • You want to save money in legal fees. 
  • You want more time to see how your company will grow before doing a valuation. 
  • You want to retain control over the fundraising process. 
  • You’re prepared to pay interest on the note. 

If you like the flexibility of a convertible instrument but don’t want to deal with accrued interest on your investments, you could also consider using a SAFE instead. However, if you want a better idea of your company’s ownership and dilution, you may be more interested in the traditional path of a priced round. 

No matter which route you choose, make sure you carefully weigh your options to figure out what makes the most sense for your company’s immediate and long-term growth

Disclaimer: Fundbox and its affiliates do not provide financial, legal or accounting advice. This content has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal or accounting advisors before engaging in any transaction.

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6 Things to Know Before Entering a Small Business Partnership

6 Things to Know Before Entering a Small Business Partnership

two businessmen discussing a partnership

Small business partnerships can be harmonious, mutually beneficial relationships that help propel your business forward. However, they can also become complicated and contentious if you and your partner aren’t on the same page

To avoid a bad dynamic, it’s crucial to do your homework before signing a contract. Here are six things to know before you enter a small business partnership

1. It’s helpful to have different skills than your partner 

An ideal business partner is someone who can complement your strengths and compensate for your shortcomings. That’s why choosing a partner with different skills than you is key, said Michael Alexis, the CEO of Team Building, a company that offers virtual team building activities to businesses. 

“My business partner has a strong mind toward the creative and operational aspects of the business, whereas my strengths are marketing, sales, and growth,” he said.

Having different talents and areas of expertise doesn’t just improve your company’s growth potential, it can also prevent conflict or competition between you and your partner. After all, when you’re working on different areas of the business, you won’t be stepping on one another’s toes. 

2. Your communication styles need to align

Clear, open communication is the key to a healthy, long-lasting business partnership. Before you go into business with someone, make sure you discuss your communication style and preferences.

That includes talking about how you make decisions, how you approach conflict, and when and how often you’d like to check in with one another, said Michelle Diamond, the CEO and founder of Elevate Diamond Strategy, a firm that advises businesses on their growth strategy and development. 

Some people like to touch base multiple times a day, while others prefer a weekly catch-up call. Agreeing on a communication strategy early on can help prevent confusion and conflict down the road. “Direct communication is key. If someone is blindsided, emotions get involved,” Diamond said. 

3. Contracts are essential

Having a good rapport with your business partner only gets you so far. To prevent problems, it’s critical to draw up a contract that spells out your roles, responsibilities, and profit sharing plan

“You have to be very upfront with who is going to do what,” Diamond said. “Sometimes you can’t account for every single thing that’s going to occur, but you should still discuss important matters to the extent that you can.” 

Consider the following questions: 

  • How will you split profits? 
  • What will your respective salaries look like? 
  • What are your business deal-breakers? 
  • What will your equity strategy be? 
  • Can you bring on additional partners? 
  • What is your process for making big company decisions? 
  • What is each partner’s role and day-to-day duties?
  • What will happen if the partnership dissolves?
  • What will happen if one partner dies or decides to leave the business?

4. It’s important to have the same goals for the business

If you and your partner don’t share the same long-term vision for the company, you risk dealing with mounting stress and discord as your company grows. 

“You can’t be successful if you’re not on the same page,” said Diamond. 

Alexis agreed, and said it’s helpful to consider why you and your partner want to own a business together. “It’s a red flag for me if someone wants image or wealth out of a business,” he said. “I want to work with someone who has a similar passion for the mission.”

In addition to discussing your values and interests, make sure you have an open conversation about your goals for the company, monetary and otherwise. 

5. Business acumen isn’t the most important factor

When you’re searching for a business partner, it’s important to look beyond someone’s resume. 

“You have to consider emotional intelligence and personality in addition to business acumen,” Diamond said. 

How well your partner can solve problems, execute ideas, and handle conflict has a huge effect on your business’s success. 

“When times are good, a business is relatively easy to manage,” Alexis said. “However, when margins are thin or the business goes into the negative is when an entrepreneur’s ability to handle adversity really shows.” 

Partnering with someone who’s resilient, positive, and hard-working in the face of hardship can help you navigate crises and slow periods with ease, Alexis said. 

6. Trust your gut

It’s a good idea to gather as much information as possible when preparing for a business partnership, but ultimately, your best source of intel is your own intuition. “You have to listen to your gut,” said Diamond. 

If you don’t feel 100% right about a business partnership at the beginning, it may not be wise to move forward, she said. 

You want to choose a business partner just as carefully as you’d choose a romantic partner, Alexis said. “This could be someone you spend the rest of your life working with, so don’t go into it loosely.”

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3 Marketing Tactics That Can Help Your Law Firm Win Clients

3 Marketing Tactics That Can Help Your Law Firm Win Clients

law firm marketing with gavel on keyboard and scales in background

Many legal firms have a reputation for taking a traditional, offline approach to marketing, but the world is changing—and your marketing plan should, too. Whether your law firm is working with a steady stream of clients or struggling to pick up new projects, adopting different marketing tactics can help you reach new audiences and stay profitable in uncertain times. Here are three helpful tactics to consider:

1. Build out your site’s SEO and functionality

Improving your site’s search engine optimization (SEO) can pay dividends in new leads and conversions. SEO, however, involves more than plugging in the right keywords. Boosting your site’s visibility means creating a corner of the internet that’s engaging, informative, and easy to read. 

After all, a business website is the most used distribution channel for marketers, according to HubSpot’s 2020 state of marketing report. People aren’t just looking for information—they’re looking for a better user experience. 

If it’s been a while since you updated your website, consider a refresh. The following steps can help improve functionality and SEO:

Hire a web designer to improve your site’s mobile performance. 

The number one technical SEO tactic marketers use to improve a business website is optimizing the site for mobile use, according to HubSpot. Making a website mobile-friendly comes down to two factors: aesthetics and accessibility. You may need to improve the page loading time, for example, or update the landing page graphics and layout so they translate better to a small screen.

Revamp your landing page. 

A clean, visually compelling landing page can entice potential clients to stick around. Instead of trying to cram in as much information about your firm and services as possible, work on stripping it down to the essentials. Include a brief description of who you are and what you offer, followed by a video or infographic, then a call-to-action that invites people to take advantage of a free phone consultation.  

Add a chatbot. 

Adding a chatbot function to your business’s website is an easy way to draw people in while offering customer service help. You can program chatbots to greet site visitors, answer questions about your firm’s services and fees, and direct them to your contact information. 

2. Get press exposure

Appearing in local or national media outlets gives you a chance to establish credibility with current clients, increase brand awareness, and promote yourself as an authority on a certain subject. 

To connect with reporters and writing looking for lawyers to interview, try the following: 

  1. Sign up for email newsletters like HARO and ProfNet, then set aside 15 minutes each day to read the source requests and respond to journalists. 
  2. Research local and national news stories that pertain to your field of law. As you read, take note of the reporters and journalists who interview subject matter experts and regularly cover the topics you can speak to. 
  3. Email reporters with helpful story suggestions or angles. For example, if a local reporter recently wrote a story about small business owners who need to beef up their insurance plans, you could reach out offering insight from a legal perspective. 

3. Increase your content marketing efforts 

As a lawyer, your greatest asset is your specialized knowledge. Doling out that knowledge in small—free—bites is a good way to raise brand awareness, attract potential clients, and build credibility with your target clientele. 

So, how do you do it? 

One of the most successful avenues is content marketing. In fact, 66% of companies surveyed in a 2019 HubSpot report said content marketing was either very or extremely effective for their brand, leading to improved SEO rankings and increased website traffic and subscriber growth. 

Content marketing can take a variety of forms—including videos, social media, and email—but the most popular tends to be written content. Blogs and articles, for example, are a simple way to educate clients and demonstrate your knowledge, while case studies give potential clients a peek into your process and track record. 

Chances are you already do some form of content marketing, but to be successful you have to put your audience’s needs first. What are your clients’ biggest concerns? What are their burning questions? Think about how you can answer their questions or offer guidance through your content. 

If you’re a divorce attorney, for example, you could write a series of blog posts on how couples can successfully navigate contentious divorce proceedings. Or, if you advise small businesses, consider writing an ebook that explores how businesses can protect themselves against potential lawsuits during the pandemic. 

The key to steady revenue and consistent clients is smart marketing. If you need flexible capital to experiment with new marketing strategies or double-down on winning tactics, a line of credit from Fundbox could help. Learn more about the benefits and how we work here

This material has been prepared for informational purposes only. Fundbox and its affiliates do not provide tax, legal, or accounting advice. Please consult your own advisors before engaging in any transaction.

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How Medical Practices Can Improve Patient Care

How Medical Practices Can Improve Patient Care

A medical professional conducting a telehealth web consultation.

Quality patient care is key to succeeding as a medical practice. When patients are satisfied, they’re more likely to seek additional care and refer their friends and family.

As the coronavirus pandemic continues, it’s important to prioritize patient care—not just for your patients’ health and comfort, but for your practice’s survival. Here are four ways to improve the patient experience at your medical office: 

1. Improve your telehealth services

Implementing or improving telehealth services in your practice can be critical to staying competitive and profitable in the current business climate.

According to a COVID-19 consumer survey from McKinsey, 46% of consumers in 2020 are using telehealth as a replacement for their regular healthcare visits, compared to just 11% in 2019. And the trend isn’t disappearing soon; 76% of respondents said they’re interested in using telehealth going forward.

To help patients get the most out of virtual visits, consider taking the following steps: 

  1. Send a digital and physical brochure to patients on all things telehealth. In the guide, you may want to list your office’s telehealth offerings; explain how to schedule telehealth appointments; provide instructions for setting up a device for video calls; or offer tips for preparing for a virtual appointment, like checking the Wi-Fi or finding a quiet space to chat. 
  2. Expand access to telehealth appointments. You may need to provide closed captioning on videos, for example, or offer free phone consultations to patients who need personal assistance getting set up. 
  3. Teach your medical staff the importance of developing a “web-side” manner. That means greeting patients warmly, asking if they have concerns about using their video equipment, and speaking clearly to avoid miscommunications. 
  4. Follow up. Taking the time to call or email patients after a telehealth appointment can help reduce confusion and increase satisfaction.

If you haven’t offered virtual services yet, consider testing them out. The American Academy of Family Physicians has a good resource guide for getting started, as does the CDC

2. Gather patient feedback

It can be tough to keep up with your patients’ changing needs, but getting feedback can help you adapt your care.

To start, send out a patient survey via email or text message. According to a 2018 MGMA report, 86% of the top performing medical groups sent patient surveys after each visit, then reviewed those surveys at least once a month. You can include questions about treatment effectiveness, scheduling, customer service, communication, or any new processes you’ve implemented.

It’s also helpful to read and respond to your practice’s online reviews, especially ones that slant negative. A 2019 survey from PatientPop said that 52% of patients who submitted negative feedback weren’t contacted by the practice; however, when a practice does respond to a negative review, the rate of patient satisfaction nearly doubles.

A thoughtful, concerned reply is only one half of the equation, though. You also have to take note of recurring criticisms and work on addressing the root issues, whether they’re related to customer service or quality of care. 

3. Prioritize price transparency

Being transparent about your practice’s treatment and visit costs can help patients make more informed choices about their healthcare.

According to The VisitPay Report 2020, 58% of patients said they’d like to have an in-person conversation about treatment costs when registering or checking out, but 54% of healthcare practices don’t voluntarily provide information on costs prior to treatment.

Sharing prices upfront means patients won’t be confused or blindsided by their medical bills. VisitPay said the top three things patients want to see are: an explanation of benefits, a single consolidated monthly billing sheet, and cost estimates prior to service.

In addition to including that information on your website or patient portal, it’s also a good idea to train your staff on financial matters. Make sure they can review bills with patients, answer questions about insurance, or suggest payment options and plans. 

4. Lead with empathy

The patient experience encompasses every aspect of a medical visit—from contacting a practice to paying your bill—but quality care comes down to personal interactions.

According to the Deloitte 2020 Survey of US Health Care Consumers, survey respondents said the two most important qualities for a doctor in 2020 are: 1) a doctor who listens and shows they care (44%) and 2) a doctor who takes their time and doesn’t rush the appointment or explanation (42%).

You can improve patient interactions by leading with empathy and compassion. Taking the time to listen, ask questions, and validate your patients’ feelings and experiences can go a long way toward making them feel safe and heard.

Improving patient care is an investment in your practice’s long-term success. Make positive changes today by gathering patient feedback, considering telehealth systems, and revamping one-on-one interactions. And if you need flexible capital to purchase telehealth software or invest in staff training, consider applying for a business line of credit.

Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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5 Ways a Line of Credit Can Help You Stay Competitive

5 Ways a Line of Credit Can Help You Stay Competitive

Business people on starting line

Getting ahead of the competition is critical to building a thriving business—and the key to staying competitive is innovating. 

“Consumers reward innovators,” said Dave Munson, the owner and CEO of Saddleback Leather Company, a store that sells high-quality leather goods and accessories. “They like companies that try to improve things.”

Improvement, however, often requires financing. According to the 2019 Small Business Credit Survey, 56% of small businesses have sought financing to expand or pursue an opportunity. Extra cash can give you the freedom to generate ideas, experiment with marketing tactics, and take risks.

Funding and credit are essential to tapping growth opportunities,” said Ted Chan, the CEO of CareDash, an online healthcare review directory. “Markets innovate very quickly now—whether it’s debt or equity, funding can launch a new product or service line to capture fast-moving opportunities.”

Business lines of credit are particularly flexible. Unlike a term loan, which gives you a lump sum of cash, a line of credit is revolving. You can tap into your funds on an ongoing basis and use them repeatedly as long as you bring your balance back down to zero.

Ready to step up your game? Here are five ways you can use funding to edge out your competition.

1. Develop a new product or service

Developing a unique product or service can help you attract new customers and increase revenue.

“One of the best ways to stay competitive in any field is to stay on top of the trends and always put your customer’s needs and wants first,” said Lydia McConnell, the founder and creative director of Le Chic Miami, a shop that sells handmade jewelry. “What would your customers benefit from the most? How can you make the best possible experience for them?”

For McConnell, that means gathering feedback from customers on their favorite jewelry styles, then experimenting with designs, colors, and concepts. For other businesses, catering to customers’ needs might require conducting market research, adding new features to current products, or investing in a unique platform or offering. 

“We used our line of credit to build out our core product, the CareDash healthcare directory,” said Chan. “Staying ahead of the curve on key trends like the consumerization of healthcare, telemedicine, and value-based care is essential to the growth of our business.” 

2. Improve production and increase output

If you can’t compete with larger companies on price, try competing on output. Using funding to streamline your production process can help you take on more work and grow your business quicker. 

When McConnell used a line of credit to purchase a laser cutting machine for her studio, she was able to process larger orders. “Before, when I was using a laser cutter at a local Makerspace I could only use their machine two hours a day.” Full-time access to such an efficient tool also helped McConnell improve the quality of her products. “It has really allowed me to create complex shapes and more intricate designs,” she said. 

Consider which areas of your business’s production process are slow or outdated. If, for example, you struggle with organizing inventory or boxing items quickly, you could use a line of credit to purchase inventory management software or buy packaging equipment. 

3. Meet increased demand

Whether or not your business operates seasonally, there are certain times of the year when you need to respond to a surge in demand. “We always want to have our most popular things in stock during the big season,” Munson said. 

A line of credit can help you cover upfront costs in raw materials, labor, production, and storage. Or, if you run a service-based business you could use a temporary cash infusion to hire seasonal employees or contractors.

“We use our line of credit in August or September and start producing an extra 10-15% of product each month to prepare for the holidays,” Munson said. “We have to buy a lot of leather and pay for the labor without the sales, but once the sales come in they far outweigh the interest on the line of credit.”

It’s crucial to have enough resources to cater to customers when demand spikes; businesses that do are more likely to see repeat customers and benefit from referrals. 

4. Invest in marketing

It’s tempting to cut your business’s marketing budget when cash is tight, but consistent marketing can be critical to expanding your customer base. A line of credit can give you the financial cushion to adopt a new marketing strategy or try a different distribution method. 

If your content marketing consists mostly of articles and blog posts, for example, you may want to explore videos and infographics. Or maybe you want to double-down on strategies with a proven ROI, like email campaigns and social media ads. 

Funding can also give you the freedom to rethink your approach to finding and retaining customers. Chan said his company employs judo strategy, which involves responding quickly to market changes and adding new features to their products before their competitors can. “We then market these features aggressively as differentiating points.”  

5. Capitalize on growth opportunities

Taking advantage of growth opportunities can set you up for long-term success, but you need the funds to act fast. A line of credit can provide the cash necessary to acquire a smaller competitor, relocate to a busier side of town, or bid on a large project. 

For Munson, the opportunity came when his clients began asking him to manufacture for them. “We had to hire people for a few months and pay for their salaries and their training, on top of trying to grow the company and continue with inventory,” he said. 

Despite the upfront expenses, the work came with long-term benefits. “The more I can grow the factory, the more it distributes the fixed costs of the factory and makes us more competitive in our pricing,” Munson said.  

Get ahead of the game

Staying ahead of the competition is essential to your business’s longevity and financial stability. To see if you can get the funding you need to help gain this competitive edge, apply for a Fundbox line of credit now. 

Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

This post was originally published on 5 Ways a Line of Credit Can Help You Stay Competitive on Fundbox.- Fundbox – Fundbox Forward

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