A security can take many different forms. Most campaigns on Milk Money will offer either equity (stock) or a form of debt called Convertible Debt.

Equity can come in the form of Common or Preferred Stock. Common Stock is the same class of stock that is typically issued to the founders/owners of a business. Preferred Stock, as its name implies, usually comes with “preferential benefits” such as dividends or liquidation preferences over Common Stock.

Convertible Debt is when a company borrows money from an investor or group of investors, and the intention of both the investors and the company is to convert the debt to equity at some later date. Convertible Debt is useful for early stage companies raising small-ish amounts as a bridge financing mechanism to later, bigger rounds. Unlike a traditional loan, repayments are deferred for a period of time during which interest accrues. At any time during this deferral period, a “conversion event” may trigger the conversion of debt into equity. A typical conversion trigger is a future equity offering by the company, in which case the Convertible Debt (including the original principal plus accrued and unpaid interest) would convert into whatever equity the company is offering to new investors.

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