While I haven’t seen authoritative numbers around convertible note usage for seed rounds, I can confidently say that the overwhelming majority of seed deals completed in Silicon Valley are done through convertible notes. In fact, while I get a ton of questions daily from entrepreneurs about the nuances of seed financing, the questions rarely stem around whether they should raise through a priced round or a convertible note. The latter is usually a foregone conclusion – not because of any particular financial or strategic rationale, but rather a byproduct of conventional “wisdom”. Wisdom that has come under some fire from investors. While I do think that priced rounds are much better in general than notes, I’m not here to take a hard line against notes (as in certain cases, they could make good financial sense).  Instead, I just want remind entrepreneurs to consider the facts before defaulting to a note option. A few summary points to consider: 1/If you set a cap, you are setting a valuation. It’s the figure that your current and next round investors will anchor around. 2/If you don’t set a cap, you’re screwing your convertible note investors and probably yourself. I can’t imagine any smart, value-add investor today investing in a no cap note that doesn’t contain any protections. 3/Things can get messy at conversion if you do multiple notes or have notes that have multiple caps. 4/Priced equity rounds are cheaper and faster than ever to do (which was the primary argument for notes). 5/You can do rolling closes with equity rounds. 6/While it’s true that notes don’t absolutely require a lead, that’s a not a good thing. A bunch of lottery ticket investors isn’t what you want as it’s much better to have 1-2 investors that have true conviction and have financial incentive to help. 7/Many institutional investors won’t participate in anything but a priced round. 8/While you do get to “punt” some of the term negotiation to later, I don’t know why that’s necessarily a good thing. Now back to my earlier point about notes making sense in certain situations. One example is if there is a defined short fuse to the next round of capital (3-4 months), and you just need a bit of liquidity to get there. An uncapped note with a discount is the best form of financing here. Regardless, if you opt for a note for a standard seed deal, here are few recommendations: Be thoughtful about the cap you set if you have a capped note. Check out whatever data is available. Talk to other entrepreneurs and investors. But never set it based on edge cases – I.e. “I think the cap should be “$X” because...

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