Why We Really Dislike Convertible Notes

12/1/2018

We see Convertible Note deals all the time. Generally, we really dislike them as bad for both the entrepreneur and the investor, for all kinds of reasons...

Summary

If you scroll to the bottom of this longish article you'll find almost two dozen articles explaining how Convertible Notes work and why they're problematic - for both sides of the table.

There are many, many more articles to be found, but we've curated these as each brings at least one new idea to the table. We've tried to summarize all those ideas in this article.

Some arguments are fairly complex, the stuff of veteran entrepreneurs and investors that have been burned, or at least unpleasantly surprised, in the past.

The fundamental argument though, is simple: as Stu Strumwasser writes in Nosh:

"Using such an instrument can make sense when the people funding are existing shareholders who already have a stake in the company’s success (or continued existence).

That is not, however, the case for new investors. They have no existing and vested interest in the business yet, and therefore would have no motivation to help the Company maintain valuation optics. They certainly have no reason to want to allow their capital to be used against their own economic interests, and asking them to do so would be unreasonable. To illustrate: if a company is worth between, say, $4MM and $6MM, and the founders and investors can’t agree on a price, they might decide to kick the question down the road by using a convertible note. They might agree to give investors an 8% accruing dividend and to convert at a 25% discount to the price established in the next round (when there are sales and better metrics by which to assess fair valuation). Perhaps the company raises two million dollars in the convertible note round, and with it they generate great traction and meaningful sales. At the next round, two years later, it might be reasonable that the company justifies a $15MM valuation to new investors. The initial investors who participated in the convertible note will therefore convert at roughly a 41% discount (25% plus two years of 8% dividends) or a valuation of $8.85MM. That sounds good compared to $15MM, but it is still far more than the $4MM-$6MM they all thought the company was worth when they invested. Their own money was used against them. And who are these initial investors who participated in a convertible note with no cap? Well, it is unlikely that they were professionals. They were probably friends and family of the founder(s)—and they were given a raw deal, usually without the founders even intending to do so."

Mr. Strumwasser's investor-centric view is correctly re-iterated by every other article author. But it omits, in his own example, the harm to the founders that we'll see below.

Convertible Note Overview

A "convertible note" is one of many investment vehicles - contracts between an investor and an company - used to get money into a company to help it grow then, eventually, get that money back out to the investor, with some return. Convertibles are usually used at the "Seed" stage of financing, that is, after maybe a little friends and family common stock money at the Concept stage but before the "Series A" stage equity round.

They're called "convertible" because they start out as debt (a "note"), then given certain circumstances "convert" into equity. Usually that equity is "preferred stock." The conversion circumstances typically include either the company raising another round of funding, or selling, or the passage of some amount of time, usually around 18 months.

Prior to conversion, convertibles are a debt that, like all debt, is senior to all equity holders. Convertible debt is usually on equal footing (called "pari passu") with other non-secured junior debt. A bank loan backed by a specific piece of collateral would be an example of "secured, senior debt", which has to get paid before holders of a convertible get paid.

Key Features of a Convertible Note

The key features of a convertible are:

The Authorized Raise, which is the range of how much capital is targeted to be raised in the convertible round.
The Interest Rate, which determines how much interest is accrued in favor of the investors' account (but not paid in cash) from the time of the investment to the point of conversion.
The Conversion Provisions, which lay out the circumstances under which the debt converts to equity. The hoped-for conversion is at a future financing round which meets the certain conditions. Those conditions are called the "Qualified Financing" and usually include the type and amount of that future round.
The Valuation Cap: when the note converts to equity, it converts at the lower of the next round's valuation or the Valuation Cap.
The Discount Rate, which is percentage reduction in the Valuation Cap convertible investors receive. For convertibles that contain both a valuation cap and an discount rate, typically the conversion price will be the lower (meaning the better for the investor) of the two.
The Liquidity Preference, sometimes called the second most important term of VC funding, after the pre-money valuation, which spells out who gets paid how much in the event the company sells or is liquidated. Liquidity preference is often stated as a multiple, e.g. a 2x liquidity preference would mean that preferred investors get paid out two times their original investment prior to common shareholders being paid. Liquidity preferences are typically either:
- "non-participating", in which preferred shares plus accrued dividends convert to common shares then get split up pro-rata at a liquidity event;
- "participating", in which preferred shareholders get paid their capital and accrued dividends first, then preferred shares convert to common shares and the remaining pot of money is split up pro-rata (yes, that means that preferred shareholders double-dip); or
- "capped participating", in which the amount of double-dipping is capped.
- Given the power of compounding math, a participating preferred with multiple greater than 1.0 liquidity preference can become very costly (in terms of dilution) for founders and other common shareholders.
The Maturity Date, on which, if the note hasn't already converted into equity, the company either has to pay back the investors (including their accrued interest) or the note converts into equity.
The Conversion Cap, or Conversion Price, defining the company's valuation if no future round is raised and the debt automatically converts to equity.
The Early Sale Premium, which is the return the investors will receive if the company sells prior to conversion. If the sale is for more than the Valuation Cap, the note should convert at the Cap (less Discount) and the investors participate pro-rata. If the sale is for less than the cap, Early Sale Premiums range from an additional 50% of the amount of invested capital to 1-2 times the amount of invested capital.

Supposed Reasons Convertibles are Good

Convertible notes are very popular and often recommended by incubators, accelerators, tech-focused angel networks, and for some odd reason, a good number of lawyers.

The table below summarizes the reasons folks like convertibles, and why we think those reasons are bunk.

AVOIDS AGREEING ON A PRE-MONEY VALUATION UNTIL A FUTURE ROUND

Uncapped convertibles are unacceptable to most investors. Negotiating cap and discount is essentially the same as negotiating pre-money valuation in a priced round.

SIMPLER THAN A SERIES A

Given the need to negotiate all Key Features, and to contemplate Automatic Conversion terms, and eventually to gain agreement and calculate pro-forma cap tables (where legalese can be interpreted and spreadsheeted multiple ways), convertibles are no simpler than Series A. And while leaving key elements of a founder - investor relationship undefined may seem simpler, in short order it can cause friction, or worse.

CHEAPER THAN A SERIES A

Given templated definitive agreements, decades history of Series A terms, and reasonable founders and investors, a reputable securities attorney should be able to craft Series A documents for approximately the same cost as a Convertible Note. Given that a convertible necessarily assumes an eventual Series A, doing both means paying twice.

Also, if the note bears interest, as most do, that interest is either a real cash cost or is dilutive to founders dollar for dollar. A $500,000 note at 6% for 18 months costs $45,000 in interest, far more than legal expense for any Series A.

FASTER THAN A SERIES A

Given convertibles are not necessarily simpler or cheaper, there is no reason to assume they are faster.

ALLOWS FUNDRAISING WITHOUT A LEAD INVESTOR AND CAN ALLOW DIFFERENT TERMS TO DIFFERENT INVESTORS

Participating in a deal without a Lead Investor is not wise from an investor standpoint. Lead Investors provide needed counter-balance to founder interests, as well as aligned and incented desire to mentor, connect, and assist. Different terms for different investors (in same relative time period) sows investor discord and can signal founder lack of integrity.

AVOIDS TAX ISSUES FOR FOUNDERS AND WITH EMPLOYEE STOCK OPTION PRICING

Founders may face "effective compensation" taxation at ordinary income rates if stock is sold very soon after founders stock is issued. Similarly, high valuation rounds can negatively affect company's ability to set attractive (read: low) employee stock option pricing. Since a convertible is not equity, even it's cap or conversion valuation does not create tax issues for founders or ESOPs. This may indeed be the only good thing about convertible notes we can find without a rebuttal, but only comes into play when stock is sold very soon after founders stock is issued.

Bad and Bad

Here's a summary of why we think Convertible Notes are bad for Founders, and bad for Investors.

BAD FOR FOUNDERS

Accrued interest = founder dilution.
Discount = founder dilution.
Conversion prior to next round is more dilutive than conversion at next round.
Cap sets maximum price: If the next round's pre-money valuation is significantly higher than the valuation cap, the cap creates a high "effective" liquidation preference for convertible note holders (even if the stated multiple is 1x), causing significant dilution to founders (as it acts essentially as a "full ratchet") and potential consternation to next round funders.
Cap and conversion price anchors discussion of next round pre-money valuation.
Stacked liquidity preferences if multiple rounds of convertibles are exponentially dilutive.
"Amendment & Waiver" provisions may enable individual convertible note holders to veto next rounds that are below the Qualified Financing threshold.
If no future round occurs prior to Maturity Date, Automatic Conversion means governance, control, and other terms typical of a Series A need to be negotiated with convertible note holders - who hold default and bankruptcy over founders' heads - disadvantaging founders in negotiations.
Default on a convertible note and you could lose your company.
Floating a convertible note necessarily implies a Series A (or other Qualified Financing), significantly reducing both capital structure and operational "optionality".

BAD FOR INVESTORS

Uncapped round implies horrible risk / return: convertible investors' money enables valuation to grow, then those same investors have to pay that higher amount for shares.
Unclear if cap and/or discount adequately compensate investors for early stage risk: high growth start-ups can double valuation yearly... a 20% discount to next year's valuation is not fair.
Long closing periods without changing terms penalize earlier investors taking more risk.
No board seats, no governance rights.
No pro-rata rights for next round.
If deal lacks a Lead Investor, and worse yet if there are different terms for different investors, there is no one to represent overall investor interests.
Without equity preferences and rights, convertible investors are subject to potential renegotiation of their terms by more powerful Series A investors.
Undefined liquidity preferences between multiple rounds or classes of investors (seniority-based vs. pari passu, for example) can cause havoc when it is time to pay.
Accrued but not paid interest is taxable.
Does not qualify for IRS Section 1202 tax break.
Capital Gains tax clock doesn't start until conversion.
"Debt Myth": while theoretically convertible notes are "debt" pre-conversion, if there is no future round the likely ability of company to pay it off, especially given it being junior to trade and other debt, is near zero.
Unless there is a "no-prepayment" clause, investors can incur equity risk for debt returns should the company decide to pre-pay the debt.

Valuation and Risk Premium

Mark Suster writes in TechCrunch: "What the entrepreneurs were really saying is, “I don’t want to take a lower valuation now, while I don’t have customers or a full team. I want to use investor money to build these things. Then those investors – the ones who took the most risks (i.e. my friends, family & former colleagues) – get to pay a higher price later when a VC comes in and prices the round.”

Many authors note that un-capped rounds are virtually unheard of these days, because the better the company does (ie, the higher its next round valuation is), the worse early investors do, as described above.

So, we get capped rounds. Suster again: "Make no mistake — [a cap] IS a priced round. In fact, in some ways can be worse for the entrepreneur. It basically sets your maximum price rather than your actual price. Example: If you do a convertible note raising $400k at a $3.6m pre money you’re ceiling is that you’ve given away 10% of the company ($400k/$4m post money). But your actual next round might come in at $2m pre money. You might have been better just negotiating an agreed price in the first place. Not always, but sometimes."

VALUATION = CAP - DISCOUNT

So why the hesitancy to set a valuation, to price the round? The real answer is that if it were to be done, the price would be very low. Concept and SEED stage companies typically don't have real business traction: real customers, a real business model, real traction. Their "valuation" is completely speculative, with innumerable risk factors. Realistically, they're just not worth much. Rather than accept that awful truth (and the significant founder dilution that would come with it), founders and convertible note investors jointly enter into a mutual delusion, with the idea that they can "kick the can down the road" to let someone else figure out the price.

Writes Fred Wilson: "Obtaining a fair valuation may be tricky for unsophisticated investors, but not for sophisticated ones. I can negotiate a fair price with an entrepreneur in five minutes…”

He continues: "Fans of convertible debt argue that debt with a valuation cap is no different than a priced equity round. That is true if the valuation cap is the same as the valuation that the investors would pay if it was equity. But if that is the case, then the entrepreneur is getting screwed. He or she is agreeing to either take the valuation that would have been offered, or something lower if the next round is lower. That is not a good deal for the entrepreneur."

Sneaky Dilution

In the rush of adrenaline that accompanies getting a deal done, combined with the start-up media-driven message that "fundraising = success" (vs the longer term view that a successful, impactful business = success) entrepreneurs can lose sight of math. Yes, math, spreadsheets, calculations.

Without creating a spreadsheet that takes into account accrued interest, discounts, liquidity preferences, conversion provisions, stock options, warrants, and various future valuation scenarios, it is very difficult to understand the power of compound math on eventual founder ownership stakes. We can't emphasize enough how important it is for founders to do those spreadsheets so that they can really grok implications.

Together, we call it all "sneaky dilution".

First, there's the easy stuff:

Accrued but unpaid interest = founder dilution.
Discount = founder dilution.

But let's get a little trickier...

The Full Ratchet

Years ago, there was a standard anti-dilution provision in VC terms sheets that basically said "if some other investor comes in after me at a better price, whatever price I paid gets converted to that lower price." So, if the first round investor paid $10 per share for 10% of the company, then the next round investor paid only $5 per share for an equal 10% of the company, the first round investor would magically get their investment repriced from $10 to $5, meaning they'd automatically now own 20% of the firm rather than their original 10%. This was called the "full ratchet", and it isn't used much anymore because founders just won't stand for it, and if granted to one round of investors all future investors will demand it.

But, it turns out, convertible debt with a cap acts a whole lot like a full ratchet! How?

Because conversion happens at the lower of the next round or the cap: Let's say that in the convertible round the cap = the company's valuation at that moment, as argued above. Let's say it is $6M. A year later, the company goes out for a Series A round, and given a year of history, new market entrants, whatever, the founders and reasonable Series A investors agree that the valuation is now $3M. What happens to those convertible note holders? They convert at the lower of the cap or the next round's valuation. So they convert to equity at $3M. Voila, the Full Ratchet!

But it is actually worse for the founders, because, depending on terms, the convertible note investors may also get the discount, and/or the accrued interest, making their effective conversion rate even lower. You have to do that spreadsheet!

The Effective Liquidation Preference Multiple

Many of the articles linked to below discuss "effective liquidation preference multiples", or the amount of equity investors actually end up with (which is the inverse of the amount of dilution founders actually suffer.) We like Silicon Hills Lawyer's Jose Ancer's example best:

"Assumptions:

$500K seed round with notes carrying a $2.5MM valuation cap.
Series A has a $10MM pre-money valuation, resulting in a per share price for new money of $4.00.
The Series A has a run-of-the-mill 1x participating liquidation preference. This means that the Series A have a per share liquidation preference of $4.00.
The $2.5MM valuation cap means the notes convert at $1.00.

Under the above example, the $500K in notes will convert, ignoring interest, into 500,000 shares. $500,000 / $1.00.

If the Notes convert directly into the same Series A preferred stock as “new money” investors get (which is what most notes require), their aggregate liquidation preference is $2 million. 500,000 shares * $4.00.

So those investors paid $500,000, but they have $2 million in liquidation preference. In other words, they got a 4x participating liquidation preference. The $1.5 million difference is the “liquidation overhang.” Ask me if I think founders/common stockholders care whether they will get an extra $1.5 million in an exit.

If you increase the size of the seed round (which is happening in the market), the overhang gets bigger on a dollar basis. (1MM shares * $4.00) – $1,000,000 = $3 million.
If you increase the gap between the Series A valuation and the seed “cap” valuation (which is also happening in the market), the overhang also gets bigger. A $15 million Series A valuation, with a $6 share price, produces a liquidation overhang of $2.5 million. (500,000 shares * $6.00) – $500,000

So as seed rounds get larger, and Series A rounds are extended further out (with higher valuations), the liquidation overhang grows, and more money is transferred from founders to investors. Historically, convertible notes were called “bridge” notes because they were closed only a few months before a full equity round, offering a small discount to the Series A price. When the price differential is only 10-20%, the overhang is perhaps worth ignoring. But when the Series A valuation is 2-3x+ of the seed valuation, it’s time to pay attention."

Conversion Confusion

You would think it would be easy to take the legal verbiage from a convertible note agreement and turn it into a spreadsheet that clearly shows what happens in various scenarios when the convertible converts.

Pro Tip: give it a try. If you can create that spreadsheet, and all the founders, attorneys, investors, and CPAs agree the legalese and the Excel sync up, congratulations, you have a defined and understandable deal - and a roadmap for when conversion actually happens.

Here are some of the areas that can cause confusion:

Down round: with notes having a cap and a discount and an interest rate, is it specified what happens in a down round, where the next round is priced lower than the cap? Do the convertible investors get the next round price, or that price less the discount, or that price with interest factored in, or some, or all, or what?
Shares outstanding: how are the total amount of shares outstanding calculated? What amount of unissued (or unexecuted) employee stock options, or warrants, or conditional shares included? If the docs call for using a "fully diluted basis", what does that really mean?
Non-Qualified rounds: future rounds below or outside of the definition of “Qualified Financing” do not convert. What if investors and founders disagree as to whether a round is qualified or not?

Automatic conversion: What happens when time runs out, no Qualified Financing has happened, and the company doesn't have the cash to pay off the note, so automatic conversion provisions kick in and the debt becomes equity? What happens to all the terms and conditions typical of a Series A, like information rights, and governance, and preferences? If they are all defined in the convertible note, why not just do a Series A instead of a convertible? If they aren't defined in the convertible, how do they get negotiated? Or do the investors just end up with no governance, no information rights, no pro-rata rights?
Seniority issues: since liquidation preferences can potentially differ between investors, or classes of investors, or tranches of funding, or multiple rounds of convertibles, it is imperative to know who gets paid how much in front of who. Intra-investor liquidation preferences are typically either senority-based (later investors get paid first) or Pari Passue (all investors are treated equally). See Charles Yu's excellent "The Ultimate Guide to Liquidation Preferences" for details.

Even more: Rockies Venture Club Executive Director Peter Adams serves up a great example of the complexities of actually calculating conversion here.

The Hampster Wheel of Fundraising

There are two black cloth sling chairs in the FI office, just under the mounted head of Boris, our mascot, a feral pig shot in the 30's by a relative of one of our founders. In those chairs have sat countless entrepreneurs, recounting their pain and remorse for having willingly climbed into what we call "the hamster wheel of fundraising".

The hamster wheel of fundraising works like this:

You take your fine company, that needs a little capital to enable growth, or your start-up, with a reasonable revenue plan, to a pitchfest, or an angel network speed-dating, or an incubator or accelerator acquainted event, or anywhere that typical investors congregate and they tell you your vision is too narrow, your market too small, your plan to "scale" not workable, your growth not aggressive enough at all. After a couple events you realize that regardless of your actual business or plan, the right answer is that you need to be at $100M valuation in five years, which means somewhere from $30-$50M in sales. You open Excel, tweak a few things, and boom, you're there.
Next join an incubator or accelerator, and polish your pitch - both the powerpoint and your TED talk-like delivery - into a gleaming jewel. Bask in the glow of your cohort's brilliance, and ambition, and the hearty encouragement - the almost certainty of success - of the Patagonia vest-wearing mentors.
Work the network. Get meetings. Pitch constantly. Revel in blur that is running your company (a full time job) and fundraising (another full time job). Humble brag of "having no life". Let each "no" make you more determined.
Term Sheet! Term sheet! Someone actually gave you a term sheet! It is "on rails" now! Play potential investors against each other, negotiate a killer valuation, close the deal!
You've bought a year and a half to two years of runway. Hire, sell, hire, grow, sell, sell, sell. You're crushing it! But it turns out growing a company is a lot like remodeling a house: it takes a lot longer and costs a lot more than you planned, especially if it is the first time you've ever done it. The cash pile runway shortens, but the promises were made. The Board is hungry. The racehorses you've hired recalculate their stock option expected values daily, and their LInkedIn profiles are updated, ready for headhunters. You must hit plan. But that costs money. The burn accelerates.
Easy peasy. Feed the fire. Fundraise. New plans, new decks, new investor meetings. Hopefully someone else can mind the store. Founder dilution? Don't worry about it. Better to have a small piece of a big pie, right, just like the mentors say?
Somewhere along the way, after a bad Board call, or a lost client, or a fundamental delay in product launch, you realize that the company you started is not in any way yours. The investors control governance through the Board, the executives control the team and operational results because you're always fundraising, the "market" and your customers and your competitors control fate. But super fast growth requires the burn, which requires fundraising, and the next round's valuation requires growth. Welcome to the hamster wheel of fundraising.

Wow. Sorry about that. Pretty depressing. But not as depressing as the true-life stories of the humans sitting on those black sling chairs, Boris's fangs snarling above them, feeling no control, no optionality: "we're on this track now and don't have any other option."

The gateway drug of choice for this sad state: Convertible Notes.

Even Worse: SAFES, KISS, and ...

SAFEs (Simple Agreement for Future Equity) were introduced by Y-Combinator in 2009. It is like a convertible note but it isn't debt, so has no interest or maturity date, or obligation on the company's part to pay it back. It also isn't equity, but rather a contract for the investor to get equity at some point in the future for investment money now. SAFEs are kind of like warrants (which also grant the holder the right to future equity), but in a SAFE investors put money in upfront vs a warrant where the money goes in later, when the warrant is exercised. SAFEs were invented to decrease legal fees and negotiation timeframes. But, they have all the problems of convertible notes, and aren't even debt.

The KISS (Keep It Simple Security) is a invention of 500 Startups, launched in 2014. Keeping it simple, there are two versions of the KISS: a debt version and an equity version. Like SAFEs, KISS function very similarly to a convertible note and thus inherit all the issues. Unlike SAFEs, KISSs do have a interest rate and a maturity, and KISSs have a larger number of terms, including exit premiums, requiring more issuer sophistication.

Here's an overview of the two.

The One Situation Where We Actually Like Convertible Notes

Because there seems to be an asterisk associated with everything, you would know there is one place we like the idea of a convertible note: for very early stage, very small dollar - or in-kind - infusions.

Some investors aren't motivated by financial concerns so much as just wanting to help the founders out. Such investors could just gift the money, but maybe they're concerned about gift tax implications, or want the founder to have some skin in the game, or want a lotto ticket that maybe, someday, they get the money back and maybe even with some return.

In those cases, we can eliminate all the reasons convertibles are bad for investors, because these investors really don't care. And, assuming the convertible used is a super-stripped-down, with no cap, the founder issues could be palatable as well.

Here's how such a thing could work: family and/or friends could pump in $5-$15k, or a advisor or consultant, or even a vendor could keep track of fees or costs and accrue that in-kind contribution. In either case, a simple, stripped-down convertible note could say that the investor money, or the value of the services provided, would convert after some time period into whatever next round vehicle happens, with whatever next round terms are negotiated, on the exact same terms as that next round. Or, if no future round happens, the family round investment or service provided accumulated debt turns into a simple signature loan at some point in time.

Even so, the problems with convertibles exist, but the parties aren't concerned. If things go well, the investment turns into something. If it doesn't, it's a straight note that the holder/lender/investor can decide how vigorously they want to pursue.

Conclusion

If you read this far, congratulations! What a slog, eh?

Net net: If you want to raise equity, do it with either a simple friends and family common stock round or a Series A preferred. If you want to use debt, do it with either a signature loan, or something collateralized, or revenue-based financing. If you want to do something in-between, some sort of hybrid, consider Redeemable Preferred Stock, or a Demand Dividend, or the claim-on-cashflow equity method used by restaurants and sometimes real estate deals.

But please, stay away from Convertible Notes!

SOURCES

We're very much appreciative of the work explaining convertible notes from the following sources:

Adams, Peter on Rockies Venture Club, "Ten Reasons Why Not to Use Convertible Debt", September 24, 2017; "Three Fallacies About Convertible Notes", June 10, 2018; and "Tax Breaks Every Angel Investor Should Know About", April 14, 2016.

Artinger, Ian on Capshare Blog, "Understanding convertible debt and how it affects your cap table", May 21, 2015.

Ancer, Jose in Silicon Hills Lawyer, "The Problem in Everyone's Capped Convertible Notes", April 29, 2015.

Briggs, Jeffrey on Toptal, "For Founders Raising Capital: Thinking Through the Implications of Convertible Notes", undated.

Coltella, Giorgia on Medium, "SAFE vs. KISS, the Evolution of the Convertible Note", Sept 19, 2017.

Funders Club Education Center, "Convertible Notes", undated

Herman, Will on 2-Speed, "Convertible Notes - An Angel Investor's View", April 27, 2016.

Lackland, BJ on Lighter Capital, "Multiple Liquidation Preferences: The Hidden Trap of Convertible Debt", July 15, 2015.

Lee, Ben in Inc., "Why Founders Need to Watch for This Popular -- But Dangerous -- Funding Trap", August 25, 2017.

Levine, Seth in VCAdventure, "Has convertible debt won? And if it has, is that a good thing?", August 30, 2010.

Naftulin, Danielle, on CooleyGo, "The Troublesome Convertible Note Cap", undated.

Strumwasser, Stu, in Nosh, "What's My Valuation? Pt. 3: Should We Just Agree to Disagree", December 15, 2017.

Suster, Mark in TechCrunch, "Why Convertible Notes are Sometimes Terrible for Startups", 2012.

Suster, Mark in Both Sides, "Is Convertible Debt Preferable to Equity?", August 30, 2010 and "Bad Notes on Venture Capital", September 14, 2014 (this is a particularly good one...)

Thompson Reuters in Practical Law, "Glossary Convertible Note", undated.

Yu, Charles on Medium, "The Ultimate Guide to Liquidation Preferences", January 1, 2017.

Walker, Scott Edward in Tech Crunch, "Everything You Ever Wanted to Know About Convertible Note Seed Financings (But Were Afraid to Ask)", and "Convertible Note Seed Financings: Econ 101 for Founders", both 2011.

Walker, Scott Edward on WalkerCorporateLaw.com, "What is a Liquidation Preference", August 25, 2010.

Wilson, Fred on AVC.com, "Some Thoughts on Convertible Debt", August 31, 2010.

Zimmerman, Ed in Forbes.com, "Startup Founders: Avoid These Convertible Note Glitches", July 12, 2016.