We’re raising money – Convertible Debt Offering

By: Robert Grosshandler | September 22, 2017


We’re borrowing as much as $1,000,000 from investors.  You can see our offering over at Crowdfunder, a site dedicated to matching accredited investors with companies like iConsumer that need cash to grow.

The terms:  $1,000,000 in convertible debt.  Interest at 8%, accrued year one, payable quarterly years two and three. Maturity: 3 years. Convertible into iConsumer stock at a discount to the then current offering price at the time of conversion.  Minimum investment: $1,000.

Let’s unpack this.

Growing our business takes cash.  We aren’t big enough (many enormous companies aren’t big enough) to generate sufficient cash to grow as rapidly as we want.  So, we look to investors to provide that cash.  The $1,000,000 is our target to help us reach our near-term goal of 250,000 members (we’re at about 46,000 now).  Our goal at 250,000 members is to be cash-flow breakeven.

Equity vs. Debt

The first investor cash we raised was in the form of equity.  Ownership in iConsumer.  We did it that way primarily because we needed outside investors to establish what they thought iConsumer was worth.  That is, they set the price for our shares by buying some of those shares.  We use the price set by outside investors to determine the amount of stock our members earn for joining, referring, and as rebates.

This time, we chose to use debt.  That is, we’re borrowing the money from investors and we’ll pay them interest on the money they lend us.  Then, at the end of the agreement (at maturity), we pay them back the money they lent us.

Convertible Debt

To make it more attractive to investors to loan us money, they have the right, but not the obligation, to convert their loan into shares of iConsumer stock.  The conversion price is set at the time they elect to convert.  It will be 75% (a 25% discount) of the most recent offering price of the stock.  So, if an investor chooses to convert three years from now, and the last time we sold stock we sold it for $1 a share, they could buy the stock for $.75 a share.

Everybody loves a deal.  So, to further sweeten our offering, if an investor chooses to lend us money before September 29, 2017, the conversion price will be $.075 a share, no matter what the last offering price was.

Restricted Shares

The discount is pretty darn sweet.  But, the shares the investor gets are “restricted”.  That is, the investor can’t sell them very easily for a year.  That’s unlike the stock investors received if they participated in our Reg. A+ offering.  Those share are unrestricted.

Interest Rate and Accrued Interest

We have promised to pay the people who lend us money interest, at the rate of 8% a year, and to pay them every quarter.  But for the first year, because we know we’re going to need all of the cash we have, the investors (lenders) won’t actually be paid cash.  The amount of the interest will be added to the amount (the principal) of the loan.  Otherwise, we’d be paying back the investors with the money they lent us.  And we don’t want to be doing that.

Accredited Investors and Regulation D

We’re raising money using Regulation D 506(c).  This is an exemption from the securities laws and regulations of the SEC.  The most important part of this regulation is that we can only allow accredited investors (and we have to confirm they’re accredited) to invest.

Generally, an accredited investor earns more than $200,000 a year, and/or has a net worth in excess of $1,000,000 (not including their home).