Date of Completion

Spring 5-1-2021

Thesis Advisor(s)

Yiming Qian

Honors Major



The primary objective of this paper is to outline the most recent innovations in the early stage financing environment while also analyzing the impact of alternative early stage financing instruments on startup outcomes. This paper provides an overview of early stage financing instruments for startups (convertible notes, SAFE, KISS notes, and Defi) and also highlights a number of growth stage financing innovations (venture debt, revenue based financing, and revenue securitization) as they too have an impact on early stage investors and founders. The analysis of early stage financing methods includes an investigation of how raising convertible debt or equity in a startups initial financing round impacts the likelihood to raise a subsequent round of funding, a startups failure rate, and its likelihood to exit. The empirical analysis results include:

1) A greater percentage of the convertible debt group (43% vs. 23%) was able to secure a subsequent round of funding when compared with the equity group.

2) The equity baseline has a higher survival likelihood of 46% vs. a 38% survival rate for the convertible debt group.

3) The convertible debt data set has a higher percentage chance to exit of 21% vs. a 2.7% likelihood for the equity baseline.

After conducting geographic, industry, and time based selection bias screens, I am able to deduce that startups who raise convertible debt as their initial source of funding are more likely to be venture backable businesses than startups who raise their initial round with equity.