Convertible Loans For Austrian Start-Ups

A convertible loan is a popular investment means to finance a start-up. Austrian law, however, does not foresee convertible loans for the most popular corporate form of Austrian start-ups: limited liability companies. Convertible loans thus have to be synthetically structured.

What are convertible loans and why are they a popular investment means To finance start-ups?

Convertible loans are typically loans that provide the lender (investor) the right to convert the loan into equity of the borrower. Sometimes the right is replaced by a fixed con-version procedure upon occurrence of a certain event or upon expiry of time. Convertible loans are popular amongst start-up investments and financing because they defer one of the major obstacles of start-up transactions: the valuation of the start-up. Due to their nature, the parties do not need to agree on a valuation of the start-up for a convertible loan. The parties simply need to agree on (i) the principal loan amount