This is a great and concise description. So in effect, are the terms on convertible notes just bets on the following round's valuation? In that case, it seems to me that's not much different from valuing the company right now, because if you have enough information (from projections & standard multipliers for the industry/sector) to bet on the A round's valuation, you could just interpolate a valuation at the current time...
I'm starting to realize that my gut reaction to squint skeptically at convertible notes wasn't too far off the mark... it's like going to Vegas and betting your company, but everyone else at the poker table has been playing for years longer than you have...
Convertible notes are a way to incentivize great execution by the founder team between the angel round and the series A. Execute better => Higher series A valuation => Less dilution from the convertible debt.
At the angel stage there are very little metrics and multiples to go by, hence why you need to invest in the team and incentivize them using convertibles.
I'm starting to realize that my gut reaction to squint skeptically at convertible notes wasn't too far off the mark... it's like going to Vegas and betting your company, but everyone else at the poker table has been playing for years longer than you have...