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Deal size rises for convertible notes

Convertible notes by and large have continued to rise in size, keeping pace with the expansion of priced rounds in venture capital.

The median size of convertible debt transactions rose 14 percent in recent months to $1.6 million, according to a 15-month study Fenwick & West conducted from January 2018 to March 2019. This was at a slower pace than the previous study period, which found the median deal size up 40 percent, but suggests investors remain willing to pay up to be involved with young companies.

The report looked at more than 100 transactions the law firm handled during the period.

The median size of convertible deals rose for early transactions that preceded the issuance of preferred stock and for late bridge rounds following a Series B or later funding, the study found. The median size of bridge rounds following either a seed or Series A funding fell 14 percent.

The median size of a convertible deal preceding the issuance of preferred stock was $900,000, while the median for a bridge deal following either a seed or Series A round was $2.51 million and for a late bridge round following Series B or later funding was $3.75 million.

Conversion discounts also showed up more frequently, even in later deals, the study found. Ninety percent of the earliest deals had discounts and so did 83 percent of the later ones.