Uncapped Convertible Notes…Barf!

I have seen at least 10 uncapped convertible notes in the last three months.

Mother of good, please stop this insanity. This is sarcastic because I can’t stop it, I can only say no.

I admit, I have particpated in one. I participated with my own personal ‘dumb’ money as I would not use investor money for this. I invested because I made the cold call to the founder because their product changed the way I thought about an industry I was passionate about. I had to pay on an open end pricing scale to learn and be involved. If I make a ton of money, it was not for being professional. I broke a rule, but in a calculated way.

If you are pitching an uncapped note, you are in rarified air and for the sake of all my 2006-2011 investments, I hope this continues….I just know it won’t.

If your lawyer thinks this is good, fire him and if your VC wants this, I believe he just hates smart angel investors.

In 2007 I passed on one great, once in a lifetime deal that was PRICED at just under $20 million. The key word is priced. I made a mistake. Passing on an uncapped note is never going to be something I call a mistake.

I wrote this post a few weeks ago, but never got to posting it. Fred Wilson’s post on convertible debt reminded me to check my ‘draft’ bin.

4 comments

  1. Mark Essel says:

    Dig how Fred’s blog rattled your memory.

    The whole pricing field is alien to me, what’s a company worth before it generates any revenue let alone profits. The size of it’s network, the rep of it’s founders, the market it is clearly serving, the channel it provides to other BigCos? Jason Cohen wrote up a good post on company pricing (part of series).

  2. Evelyn says:

    who in the HELL would actually admit to owning a lawyer  and don’t you know equity is imagination in a paint brush NOT something cold as venture capital?! why are YOU twittering as a barf bag???????

Comments are closed.