[lsc]

>But even preferred shares are a terrible idea. The right thing is to give the founder a convertible note. That means the founder has debt if the company folds early (and gets his/her money back), and if the company raises a financing round, they just convert on those terms in to the same preferred shares as the subsequent investors.

This seems like an elegant solution to the problem. So these convertible notes pay interest, right? is this generally fairly high interest? I mean, if I were to ask a bank for a loan without a personal co-sign,[1] they would charge me a pretty hefty rate if they looked at me at all.

At least for my company, even upon success the chance of an investment round is... small, so I imagine the people buying those convertible notes would still want some upside.

[1] I'm assuming these convertible notes are corporate debt, not personal debt backed by the founders