How do you offset the interest on a note?
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Angel Investments are typically made via Convertible Debt or SAFE Notes.
Convertible Debt usually accrues interest along the way and that interest eventually is converted into equity along with the principal amount of Debt invested.
The correct way to account for the Convertible Debt interest is to accrue it every month based on the debt $ amount outstanding and interest rate.
One reason founders like SAFE Notes is that SAFE’s usually do not have an interest accrual. If Convertible Debt is outstanding for a long time - aka a couple years - then the interest can become sizable and cost the company a lot of equity upon conversion.
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How should convertible note financing be handled on the balance sheet?
Sun, 10 April 2016
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