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.