[bluewatson]

It most definitely will. The potential to be severely diluted in the next round with uncapped convertible debt is a real potential. It also can perversely make the angel wish for a lower valuation on the series A so they convert at a higher percentage. Overall I don't think that this affects VCs as much as it does angels. If anything you will start to see angels move up the food chain and raise bigger funds to go after a bit later stage besides seed.

[sojourn]

Agreed, however if you follow the money many of the angels already co-invest and have receive financing from very specific VCs, will be curious to see what happens if they try to go more head-to-head with later stage deals.

[mattlong]

They wouldn't be diluted at all. Convertible debt is not a priced round.

[bluewatson]

That is the problem with it being uncapped. The trend from Ycomb were capped convertible notes that put a limit on how much the series A could be priced at. This acts as a type of anti-dilution for the angels who know what their percentage ownership will be on the next round. The problem with uncapped is that you can be diluted to very little ownership depending on the valuation for the series A which sets a share price and conversion number for your note. In this sense you have the potential to be substantially squeezed down in the round which is how I was using diluted.