[ares2012]

There is no way to know at the beginning if you'll be a $0M or $30M company and to make their portfolio math work they need as much upside as possible if you get to a higher valuation. The pie is fixed at 100% and everyone is fighting for more of it.

The real problem with capped notes isn't the proxy for price, it's that the cap table is impossible to discern. Capped notes actually do have an advantage in that you can do a rolling close of your round, so you don't have to have everyone invest at the same time on the same day. The downside is that it is hard to explain to your employees exactly how much they own since it depends on how the notes convert.