What happens if there is no exit or "liquidity event", but the startup is profitable and never takes additional funding? When does the $150K become equity?
Some notes have automatic conversion at a given valuation (usually the 'floor', which in this case does not exist.) Others have no such clause, presumably under the incorrect assumption that a "liquidity event" will always happen if there is a success. I've dealt with both types of notes before and always insisted on adding an automatic conversion clause.
Might there also be some far-out repayment date — say 10 years — and a small interest rate (even without a discount)? Then, if the company becomes a perpetually profitable independent growing concern the loan is still eventually repaid, though not with the kind of equity conversion and appreciation the investor is really hoping for.
