Convertible Debt vs. Straight Equity vs. Straight Debt
Convertible Debt vs. Straight Equity vs. Straight Debt: A Complete Comparison
When raising capital, issuers often face a choice between three core structures: convertible debt, straight equity, and straight debt. Each has its own implications for ownership, repayment obligations, investor appetite, and long-term control. Choosing the wrong instrument can either dilute you too early, overburden you with fixed repayments, or fail to attract the right investors.
- Convertible debt: A loan that can convert into equity, giving investors both downside protection and upside potential.
- Straight equity: An ownership stake sold in exchange for capital, with no repayment obligation.
- Straight debt: A fixed obligation to repay principal plus interest, without giving away ownership.
Side-by-side comparison
| Criteria | Convertible Debt | Straight Equity | Straight Debt |
|---|---|---|---|
| Repayment obligation | Repay if not converted; may include interest until conversion | No repayment—investors paid via dividends or capital gains | Full repayment of principal plus interest required |
| Equity dilution | Deferred dilution—occurs upon conversion event | Immediate dilution at the time of issuance | No dilution—ownership remains intact |
| Investor upside | Equity participation on conversion, plus interim yield | Unlimited upside from share price appreciation | Fixed return (interest), no equity upside |
| Risk to issuer | Conversion can be dilutive; repayment still possible if conversion doesn't occur | Loss of control depending on stake size and rights granted | Default risk if unable to service debt |
| Valuation timing | Often delayed until conversion—can be beneficial in early-stage growth | Valuation locked at time of issuance | Not directly impacted by company valuation |
| Common use cases | Bridging to next equity round, strategic financing, project finance with upside | Growth capital, acquisitions, balance sheet strengthening | Asset purchase financing, working capital, predictable cash flow businesses |
| Investor profile | Private credit funds, venture debt providers, crossover investors | Venture capital, private equity, strategic investors | Banks, institutional lenders, private credit funds |
When to choose each
Convertible debt works well when you expect a higher valuation in the near future but need capital now. It’s popular in bridge rounds, pre-IPO financing, and strategic capital raises that attract investors who want both yield and upside.
Straight equity is most suitable when you’re comfortable with immediate dilution and want to avoid fixed repayment obligations. It can be ideal for high-growth companies with no current profitability.
Straight debt makes sense for companies with stable cash flows who want to preserve ownership, but it can limit flexibility due to covenant requirements and repayment schedules.
Investors searching for “convertible debt vs equity” or “convertible note vs loan” are often in active decision mode. If you’re one of them, your decision should be driven by cash flow reality, investor fit, and long-term control—not just headline pricing.
Our role in structuring and placement
At Financely Group, we arrange and place all three types of instruments for qualified issuers. Our job is to model outcomes under each scenario, source aligned investors, and execute the raise with clean documentation and efficient closing.
Need to decide between convertible debt, straight equity, and straight debt? We’ll map the trade-offs, model the impact, and bring you the right investors.
Request a Capital Structure ConsultationFinancely Group acts as an arranger and advisor for qualified issuers. We are not a lender, broker-dealer, or investment adviser. All capital raising services are conducted under applicable private placement exemptions and subject to KYC/AML, sanctions screening, legal review, and a signed engagement.
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