Re: Guess Who Lost Big on the Zappos Deal?
by jacquesm on Wednesday July 22, 2009 @08:04PM
(#718799)
The title says 'lost big', not 'lost out'.
It is my understanding of the use of convertible debt that the industry uses this as a means of recouping part or all of the money in case an investment doesn't fly but doesn't tank either.
If it flies convert otherwise demand your cash back and treat the investment as a regular loan.
Wait too long with converting the debt and you'll find out that the knife cuts both ways.
What I really don't get in all this is why after such a spectacular exit this founder would go and pick up such a small investment on a convertible loan basis.
If you use 'winning' and 'losing', the usage 'lost big' works well for the situation.
It depends how you read the title - in fairness to jacquesm it does read like they have actually lost something. Which isnt technically true - they missed a great opportunity sure, but there is no loss, purely a failure to gain (IMO that's a huge distinction).
And they did lose out, if they had convertible debt and asked for the money back instead of converting it. That is an exceptionally rare outcome. No VC does a convertible debt deal expecting it to actually be a loan.
Everyone seems to hate this article, but I found it useful. It is an interesting data point that a fairly highly regarded VC thought so little of Zappos that they opted not to convert a convertible round. It's up there with Battery turning down Facebook.