In the world of startups, the fact of finding financing It is a fundamental part to promote the growth and the development of these companies in their early stages. One of the options that have gained popularity in Uruguay In recent years, the so-called convertible notes: a type of short-term debt that converts into equity. Instead of making regular payments on interests, Holders receive discounted shares as a form of interest.
Diego Castagno, lawyer of Ferrere Studios, He said that “today in the private sector you have associations and business groups willing to make these high-risk investments and a clear public policy,” considering that “we are in a good scenario of opportunities.”
Castagno, along with the lawyer Enrique Slekis, presented within the framework of the Campus Party held at the exhibition center of Latin a talk entitled “High-impact financing instruments in Uruguay and current market trends “Local Venture Capital”.
With the intention of focusing on different financing opportunities offered by the local entrepreneurial ecosystem, the meeting began on Friday and will end this Sunday, in an event defined by its organizers as “one of the events of innovation and technology “the largest in the world”, with international and local speakers, workshops, a special day for e-sports and gaming fans and an area for business and networking.
What are convertible notes?
Convertible notes as a financing option are used primarily by early-stage companies looking to close an initial round of financing or by companies in more advanced stages that need additional cash ahead of its next planned round of funding.
Convertible notes are by definition short term loans who have the option to become actions of the issuing company at a certain future date. This means that investors who own convertible notes have the possibility of converting their debt in share participation in the company, after a period of time agreed by both parties.
One of the main advantages of convertible notes is that they allow for a quick closing of an initial round of financing. This is especially beneficial for startups that need to secure the participation of their first investors.
The scenario in Uruguay
In an interview with Scope, Castagno contextualized the current scenario. “Ten years ago, no one in Uruguay I was talking about selling capital. Today in the private sector you have associations and business groups willing to make these high-risk investments and a clear public policy. While in the previous government, there was the National Innovation Agency (ANNI), is now Uruguay Innovation Hub, an initiative that was launched by this government and that gives it an innovative and modern touch.”
The lawyer identified the appearance of convertible notes as a novelty as a mechanism to obtain funds. “Here in Uruguay, “When you finance a company, you’re a bit used to the old way. I give you a loan, I ask for a guarantee and you give me back the money with interest,” he said.
And he added: “The convertible note comes to change this perspective and, truly, we see that today certain investors who intend to make high risk investments, They find it difficult to work on this instrument. It is a debt instrument that an investor gives a certain amount of money with certain concessions. One does not promise, one does not set an evaluation at that time and, in the future, under certain conditions, if an event of liquidity, That is, for example, if I have a later round or whatever, I can capitalize and have shares.”
“What can happen is that this never happens, the company arrives in bad shape and I gave you the money and that company does not ask you for anything. warranty and you’re not going to give me back the money and there won’t be any legal liability that you don’t give me back the money. That’s something that I really think is starting to change in Uruguay”, explained the specialist, who defined the situation as a “cultural change.”
“We are in a good scenario of opportunities for investors. Uruguay has a unique opportunity due to the number of private agencies what is there and the public policy “The government is promoting this. It is a small country, we all know each other, and I see people who say that there are not enough startups to invest in, that is, there are people willing to invest and there are not enough people, there are not enough startups to invest in,” the senior lawyer said.
Regarding the work that the firm carries out, Castagno mentioned that “we at Ferrere have a practice area that we call Venture Capital, which is actually venture capital, that there we can be on both sides of the counter, on the side of the entrepreneur or on the side of the investor.”
“Generally, when we are on the entrepreneur’s side we have two important legs, one that is strictly legal, we work on an x-ray of the company where we identify the red flags for investment. And then on the other hand, we also have a consulting team of CPA Ferrere “He works in general on the financial models of the company and the projection of stability that it has. When we go to the side of the investor, what we help him a little more is to look for the investment instrument that is favorable for him, to see how much he gives up in the share of the company, to help him have a strong shareholder agreement that protects him,” he explained. Chestnut.
“There is the Uruguayan Private Equity Association which was born two years ago. It is the first initiative that includes angel investors and Venture Capital funds. That didn’t exist in Uruguay. It already existed throughout the region, except here. And that’s very good, because it really is the meeting place where these kids have to go,” he concluded.
Source: Ambito
