nemanja-mit

Surprisingly, bio is pretty similar to software capital-wise, at least initially and the standard YC deal works well. Jared and Jorge wrote good pieces around this recently -

https://blog.ycombinator.com/how-biotech-startup-funding-wil...

https://techcrunch.com/2019/08/09/biotech-researchers-ventur...

Case in point - Asher Bio from the most recent YC batch went from zero to a working molecule & in-vivo data in ~3 months on the standard deal - https://techcrunch.com/2019/08/20/here-are-the-82-startups-t...

Key terms are interest rate (coupon) and conversion premium. These are not printed on preliminary prospectus and will be printed on the final once the pricing is determined. They way this works is that underwriters (big banks listed on the first page) go to the market (long only and hedge fund investors) with a range for coupon and conversion premium. Investors will express interest somewhere in the range and the instrument will be priced tomorrow at close to get the right investors and best pricing for Tesla. We'll see the final terms once the convert is priced tomorrow after close, but qualified investors already have offering ranges.

Generally, converts have much lower interest than straight debt because they offer equity upside to investors once the stock goes above the conversion price. Tesla is high volatility stock, so the convert pricing will be attractive for the company (low coupon / high conversion premium) because that embedded option is valuable to convert investors.

looks like you've done time on a coverts desk ;)

> probably much smarter to distribute their lender among multiple entities than one giant bank that would have leverage on them

The banks you see on the front page of the prospectus are not lenders in this transaction, they are underwriters. They are executing transaction and distributing the converts to the institutional investors (long-only and hedge funds). At any rate, underwriters and investors will have exactly zero leverage over Tesla following transaction (debt holders have no voting power).

> would use a portion of the money to inflate their share prices via a small buyback

Not at all. They are concurrently offering common shares, so buyback would make zero sense (i.e. buying and selling shares at the same time). They plan to use proceeds for general corporate purposes (Model 3!) and to buy a call spread they will overlay on top of the convert to synthetically increase the effective conversion premium above the premium that convert will price at. This is done to reduce potential dilution down the road.

> Tesla is raising capital without diluting their shareholders...

Correct - this convert will likely fly off the shelves and the conversion premium will be high (perhaps up 30-40% from tomorrow's close). On top of that, they will enter into the call spread that will bring the conversion premium to up 50% or 75% (depending on the structure they pick) from tomorrow's close.

> Also the maturity date of 5 years is rather interesting

This is standard duration for convertible debt. Generally they are structured with 5 year or 7 year duration, but 5 years sell better (pricing is also tighter).

Overall, smart deal for Tesla and net positive for shareholders.

actually that law predates the explosion of the student debt market. it was intended to close a loophole - lore goes that law school graduates would default on their student loans just after they passed the bar and got their first law firm job

It's a recruiting tool, that's all. They want to be a bit open sourcey to attract top talent. The broken unit test battery that comes with it is a job interview tool.