imgres-1I am starting to hate the notes used for the first round of a companies funding.  The rules just continue to change.

The notes start out with a cap but then it ends up that there are several caps on the same note.  Transparency here would be nice.  So the price you thought you were going to convert at is not the price.  It is a blend of all the notes.  Sucks for the investors.

Now I am seeing notes where when the VC comes in it isn’t about converting the original investors at the cap but the cap is now shifted to be a pre-money price point.  Did I miss something?

I get the reason to do a note.  It is quick, it is easy and it isn’t expensive to do.  Also, you don’t need a lead on a note.  When you have an equity round someone needs to set the price.  The beauty of that is that once the investment is made then everyone knows exactly what they own.  I do like fixed numbers.

There are even a few accelerators who now come in and want everyone to be re-priced so that the cap table looks different for them.  Seriously?

I get the game.  I understand why everyone plays it but I hate getting screwed.  I want to know what I own when I wire.  I don’t want to find out everything has shifted.  That is why I get a side note.  Of course lawyers hate the side note because they are under the belief that it will be hard for the entrepreneurs to get funded later on which is utter bullshit but whatever.

Just going off here.  The first company that I was given an opportunity to invest in did a note.  They had a real business with revenue.  I told them I wouldn’t do a note and passed.  They have gone on to be quite a large company.  I don’t kick myself for that but it did make me think about getting over the note.  So I did.  Now I am really starting to rethink the note.