A Velocity Ventures case study – by Nick Cocks, Partner of Velocity Ventures and Board Chair of Carbon Click
Convertible notes are supposed to be a bridge, not a permanent structure. But for many early-stage companies, one bridge round becomes two, becomes three, becomes a stack of notes issued years apart on different terms, quietly compounding against a valuation nobody has priced yet. Eventually that stack can block the company’s next move entirely – fresh capital, a debt facility, or an exit. CarbonClick, a Velocity Ventures portfolio company, hit that wall in 2025. This is the story of how its board worked through it, and why it’s a useful playbook for any early-stage company that recognises its own cap table in this description.
CarbonClick and Velocity Ventures
CarbonClick is a New Zealand climate-tech company that helps travel and hospitality providers offer carbon offsetting to their customers, embedding Gold Standard-certified offsets directly into the checkout and customer journey. Velocity Ventures has been an investor in CarbonClick across multiple funding rounds, and I have served as Chairman of CarbonClick’s board together with founder Dave Rouse and CEO Steve Hodgson. Our involvement has given the fund a close, hands-on view of the company’s capital structure as it evolved. Like many venture-backed startups, CarbonClick financed much of its growth through convertible notes rather than priced equity rounds – a common, sensible choice for a company that wants to avoid setting a valuation prematurely.
A cap table with too many layers
Over several years, CarbonClick issued convertible notes across a series of separate rounds – in 2020, 2022, 2023/24, and again in 2025 – each with its own terms: different discount rates, different valuation caps, different conversion triggers. Individually, each note made sense as a fast way to bridge the company to its next milestone. Collectively, they created a problem common to many early-stage companies: a cap table stacked with unconverted debt whose true dilutive impact stayed opaque until the moment those notes actually converted. That moment arrived when CarbonClick needed the cap table resolved – not simply modelled – so that a transaction could actually proceed.
The failed merger that exposed the problem
In 2025, CarbonClick entered into a term sheet for a proposed merger with a private equity-owned strategic acquirer, structured so that CarbonClick’s shareholders would receive shares in the acquiring company in exchange for their CarbonClick holdings. Under the terms of the notes, the sale itself was a conversion event – meaning the convertible notes would automatically convert into ordinary shares, under their existing contractual terms, the moment the deal completed.
When the board modelled that conversion on the terms of the deal, the results were stark: converting the notes at their original terms would have diluted CarbonClick’s ordinary shareholders to less than 1% of the combined company – and shareholder approval for the merger was required under the company’s constitution and shareholders’ agreement. It was clear from early outreach to the CarbonClick shareholders by Steve and Dave that they would not support the transaction, so CarbonClick’s board proposed compromising the notes on revised terms ahead of completion, to give the ordinary shareholders a meaningful stake and the vote a realistic chance of passing. But the acquirer’s board saw too much cost, complication and risk in taking that on as a condition of the deal, and withdrew. The merger collapsed – not because the underlying business case didn’t stack up, but because the cap table made it too hard to execute a clean transaction.
Rather than treat the failed merger as a one-off setback, CarbonClick’s board treated it as a diagnosis: as long as the note stack remained on its original terms, any future capital raise, debt facility, or trade sale would run into exactly the same wall. The board’s strategic objective was to remove that constraint permanently – and it decided to reuse the conversion framework it had already built for the aborted merger, even with no live deal on the table, to clean up the cap table pre-emptively.
The first attempt was a voluntary compromise: Steve and Dave approached nearly every convertible noteholder personally and asked them to agree, consensually, to convert their notes at revised ratios that preserved a meaningful equity position for ordinary shareholders. The response was strong – a large majority of noteholders, by value, indicated support – which demonstrated the goodwill amongst the investor base. But a voluntary process needs, in practice, unanimous or near-unanimous agreement to work, because any single holdout can still enforce their note on its original terms. A small number of noteholders didn’t sign on, and at least one responded with formal demand notices – meaning the voluntary route alone could not deliver a fully clean cap table.
The fix: a formal compromise under Part 14
With the voluntary process short of what was needed, the board moved to a statutory mechanism available under New Zealand’s Companies Act 1993: a Part 14 compromise. Rather than requiring every individual creditor’s agreement, a Part 14 compromise groups creditors into classes, and if a class votes in favour by the required majority (75% by value and 50% by number of creditors in that class), the compromise becomes binding on every creditor in the class – including those who voted against it, or didn’t vote at all.
CarbonClick’s board put the same conversion terms from the voluntary process to a formal vote of noteholders, split into classes. Every class approved the compromise by a wide margin. The result: every layer of the capital structure – the earliest notes, the most recent notes, and the ordinary shareholders – ended up accepting a different outcome than their contracts originally specified, in exchange for a cap table that actually worked. Noteholders received less than their full contractual entitlement; ordinary shareholders retained a meaningful stake rather than being diluted to almost nothing. It was a negotiated, structurally balanced compromise rather than a zero-sum outcome – reached through a formal, binding legal process rather than informal goodwill alone.
Moving forward
With the note stack converted, CarbonClick now has what it didn’t have before: a sale-ready cap table. Since the compromise, the company has moved forward rapidly – it has closed a bridge financing round, putting fresh capital in the bank and giving it the runway to close out the large commercial contracts it has been working on. With the cap table clean and near-term funding secured, CarbonClick is now working with corporate finance advisors Modus Partners on a fresh trade sale process and accepting offers – this time without the risk of a shareholder vote collapsing a deal at the last minute the way it did with the original merger attempt.
For Velocity Ventures, and me personally, this case study is a reminder that cap table hygiene isn’t a back-office concern – it’s a strategic one. A convertible note is a useful tool, but a stack of them, issued over years without an eventual conversion event, can quietly become the single biggest obstacle to a company’s next move. Early-stage companies carrying multiple layers of convertible debt should model their fully-diluted conversion scenarios well before they need a clean cap table for a raise or a sale – not after a deal has already fallen over because of it. And where a voluntary path isn’t enough to bring every noteholder to the table, formal compromise mechanisms – a Part 14 process in New Zealand, or their equivalent elsewhere (like Singapore’s scheme of arrangement under the Insolvency, Restructuring and Dissolution Act) are a legitimate, board-led tool for resolving a genuinely stuck capital structure.
Velocity Ventures is a venture capital fund based out of Singapore investing in early-stage travel and hospitality technology companies. We are not legal advisors. Before acting on any of the matters raised in this blog please seek independent legal advice.
