[pcmaffey]

Ease and simplicity is definitely the biggest reason notes have continued to be used. But their original purpose was to solve the problem of setting a price on early stage companies.

I agree that 20% discount by itself is not appealing enough incentive for the risk of early stage investment. But what about 40%? ...50%? A discount is just the mechanism that most accurately captures the variable nature of valuation. Finding the right number is where the modeling happens.

[DelaneyM]

I believe 25% is the smallest discount I've seen thrown around, 40%-50% is rather common.

As was mentioned elsewhere, smaller discounts tend to apply to shorter horizons, such as when bridging immediately into a round. In those cases, they can be a good way for VCs to get on the cap table with prorata rights without having to muck around in series-A drama.