Priced rounds are great for VCs because they remove all their risk. But they don't remove any founder risk. Do a down-round after a priced round and you'll wish you were just taking more dilution from a SAFE.
> "1. They defer the issue of dilution until a later date".
When the company is doing well, notes allow founders get less dilution, sometimes way less. This is great for founders, and is just about the only time in the whole startup thing where things go better than expected for founders.
If the company is doing badly, I'll take a lower conversion rate over having to raise a down-round any day.
> "2. They obfuscate the amount of dilution the founder(s) is taking. I think many investors actually like this"
He sets up a moral imperative: you're an irresponsible founder if you don't know what dilution you're taking. But I know what dilution I'm taking: it's X _or less_!! (Again, in a down-round I'm fucked either way, so the downside of notes doesn't matter)
> "3. I cannot tell you how many angry pissed off angel investors [..] they own a LOT less than they thought they did."
And here we get to the crux of the issue, investors own less. If investors own less, who owns more? Founders do.
> "4. Most importantly, we cannot and should not continue to allow founders to issue notes to investors and not understand how much dilution they are taking on each time they do it. This is WRONG."
"Silly inexperienced founders accidentally give investors a bad deal. This is morally WRONG". Needless to say, I'm unsympathetic to this view.
Look I understand why VCs don't like notes. But to pretend that this is a founder-friendly thing is beyond irritating (note: he's far from the only VC to do this!). And this is one of the reasons I trust YC far more than any other investors - they're in it to help people make startups and they argue for founder-friendly terms.
(PS there is a real issue in that inexperienced founders might raise too much thinking its free money, and then they get a lower cap than expected. But my only bad experience with raising with notes is that VCs treat it as a lower implied valuation when raising the next round.)