Investment Instruments

Investment Instruments: Differences Between Convertible Instruments and Shares

Investment instruments are different legal means used to receive financing. Typically, an investor can invest in exchange for shares or invest using a convertible instrument.  

‍Shares 

There are common and preferred shares, with the latter being the ones investors request because they carry additional special rights, such as preemptive rights. Typically, common shares are held by the founders.

‍Convertible Instruments

In addition to shares, there are also convertible instruments such as convertible notes and SAFEs that allow investment to be received without issuing shares at that time, postponing issuance until a later round and deferring the valuation and share issuance process in order to streamline the process and reduce costs. These instruments may include clauses such as a valuation cap, discount, and interest.