This time last month I wrote a post titled 4 Reasons Investors Shouldn’t Do Convertible Notes. Today, Fred Wilson has an excellent post Convertible and SAFE Notes with more detailed reasons why he doesn’t like convertible notes. Here are his four reasons against convertible notes:
- Dilution (and valuation) is deferred to a later date and is too important to punt on.
- Notes make it harder for the founders to understand how much dilution they’re taking.
- Notes build up and it becomes more painful when a priced round actually happens.
- Founders often promise a percentage of ownership verbally to angels but then the notes don’t meet the expectations causing problems.
The solution is the same: price the round. Read Convertible and SAFE Notes along with the excellent comments to learn more.
What else? What are some more reasons to not do convertible notes?