The financing is done in the form of convertible notes (or debentures). A convertible note is a loan that is convertible into shares of a company. It offers a loan that, instead of being paid back with interest, can be turned into equity of a company at a financing event (e.g., next round after graduation). The capital plus the accrued interest of the note is then converted into the shares, based on the conversion agreement between the company and the investors.
For Ecofuel participants, the investment is a convertible note of up to $75,000 (based on the assessment in terms of capital required by the Selection Committee).
The advantages of such a financing structure are that it is more straightforward for participating companies (and saves on the negotiation time), it also avoids for many start-ups having to negotiate a new shareholders’ agreement prior to closing the investment. Bottom line, it makes the deal close faster.