When Snap raised $1.27 billion in a convertible note offering earlier this month, it answered a longstanding question that Wall Street had about the messaging company: When and how would it raise capital to cover its ongoing cash burn? Until recently, Snap’s stock was too low to allow for an equity-raising, while borrowing money might have been costly given Snap’s lack of profits.
The convertible note offering provided a neat solution: Snap can wait seven years to repay the money either in cash or by issuing stock. The decision to go this route is the latest example of convertible notes' increasing popularity among tech companies as a way of raising money. In the past year, Tesla, Twitter, Square, Atlassian and Splunk have also sold convertible notes.
