When 'pg' tweeted other day about all deals being convertible notes, I researched a bit about them. Following is my notes on em.<p>Convertible notes make a lot of sense for both Angels and Founders as both are taking risks. If a startup ever makes it big, founders have benefit as angels are being discounted. If a startup doesn't make it, at least angels get the power and they can act according to the prior agreed conditions. For angels, tax advantages are also worth considering. Again, all the benefits depend on the fine details.<p>Venturehacks has nice article. <a href="http://venturehacks.com/articles/debt-or-equity" rel="nofollow">http://venturehacks.com/articles/debt-or-equity</a>
Summary is that, it is better to raise convertible debt for small amounts and it is better to go for the equity if bigger amounts are needed.<p>There is an awesome write up by Yokum here <a href="http://www.startupcompanylawyer.com/category/convertible-note-bridge-financing/" rel="nofollow">http://www.startupcompanylawyer.com/category/convertible-not...</a><p>There are many types <a href="http://en.wikipedia.org/wiki/Convertible_bond#Types" rel="nofollow">http://en.wikipedia.org/wiki/Convertible_bond#Types</a><p>I think it is safe to assume that a seasoned angel/vc won't screw founders - it only gets them bad reputation. That said, it is everyone's responsibility to know/read what they are getting into before signing.