Feld has a lot of great insights into venture finance, but this post isn't as characteristically on point. Notes don't convert on a pre-money or post-money basi

Feld has a lot of great insights into venture finance, but this post isn't as characteristically on point. Notes don't convert on a pre-money or post-money basis. They just convert at whatever price the cash investors get (subject to any discount) or at a price equal to [$ Cap Amount]/[# of Fully diluted shares prior to the financing]. So this really has nothing to do with the notes and everything to do with the cash investor's failure to specify in the termsheet. Unless it's expressly pointed out that what ever pre-money valuation is being offered must include any note conversions, then it seems relatively straightforward that the pre-money would include fully-diluted shares (typically the founders' stock and any option grants). This has nothing to do with the terms of the note--it is simply a matter of what the investor is "valuing" when he gives a pre-money valuation. Don't blame the terms of the notes for a problem that is created by the cash investor's miscommunication.