Bill Payne summarized and points to some great resources comparing the relative merits and demerits of convertible debt vs equity as funding instruments for startups.
For those unfamiliar with these terms:
- Offering equity means making the investor a co-owner (not necessarily equal owner)of the venture with the founders. This means you have to agree on a valuation (aka dollar value for your company)
- Convertible debt usually means the investor’s money is treated as a loan that will convert into equity in the future, at whatever price your future investors negotiate – but with a discount.