Business
Notes & signals: an investors debate
Dave McClure, as is his wont, calls out Mark Suster and Fred Wilson for their posts on convertible notes. An edited Twitter debate.
- Curtain rises:
The Hidden Terms in Convertible Notes That You'll Want to Understand (with update for @adeoressi) bothsid.es/l0S- Enter stage right:
yo @fredwilson @msuster ur missing main point on notes -- big reason they're used over priced rounds isnt valuation, rather synchronization- @davemcclure @fredwilson not missing the point, Dave. It's possible to do equity rounds with "high resolution" pricing
- if founders price round they need *ALL* investors 2 agree on price same time; with notes they don't. this is BIG deal. @fredwilson @msuster
@davemcclure @msuster I don't understand. Every venture investment I've ever made, every investor paid same price. That's how it should be- @fredwilson that's hardly true -- the *first* $100K in a $1M round is worth a HELL of a lot more than the *last* $100K.
- @davemcclure I disagree . When we lead a round we never ask or would ever take a discount for leading
- @fredwilson but fred when USV decides its a binary outcome... everyone falls in line behind ur decision, & it's a big chunk of cash/equity.
- @fredwilson however, if first $100k contributes toward u making such a decision, it's easy call 4 entrepreneur 2 give discount as incentive
- @davemcclure I don't like the optics of buying a lead with a discount. I think the vision and team should be enough.
- Suddenly, from offstage:
@harryh @fredwilson @davemcclure when you sell your company making everyone happy is complicated enough w/o multiple prices per round- .@cdixon @harryh @fredwilson oh come on chris, that's BS -- happens all the time. first movers take more risk & SHOULD get better pricing.
- @davemcclure that's a deal breaker for me. I would walk if anyone in a round was getting a different (better or worse) deal than me.
- @davemcclure the one exception is bridge or note holders who are converting in from another round
- @fredwilson come on fred, that's an absurd statement... this is market standard behavior. happens all the time.
- @fredwilson that logic should hold up on a fractal basis within a round as well. same exact story.
- @davemcclure that is our essential disagreement. I believe in the integrity and sanctity of a round.
