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Over the last decade, convertible promissory notes (also known as convertible debt) (“Notes”) have become probably the most popular way to invest in seed rounds of start-up and early stage companies.

Recently, I have read a number of posts criticizing the use of Notes. While it is true that Notes are not right in every circumstance, I believe they are still very useful in the right circumstance, and offer a number of benefits, including the following (nothing earth shattering here, simply a reminder of some good features of Notes):

1. Deferring the valuation of the Company – Notes do not require a formal valuation, and therefore can defer the time and cost of negotiating the value of the company.
2. Control – Typically, the issuance of Notes does not result in a loss of control for the founders.
3. No forced appointment of board members – While I often see this discussed as a positive for the company but a negative for the investor, in my opinion, this can sometimes also be positive for the investor, as forcing the founders to deal with a professional board member too early can be problematic.
4. Debt as opposed to Equity – Investors are holding a debt instrument, which can potentially give them stronger rights in the event that the company does not perform as expected.

Conversely, there are two arguments that I often hear in favor of Notes that I do not believe to always be true, namely that they are simpler than an equity purchase in terms of documentation, and cheaper.  If this is the reason you are choosing this vehicle, I suggest giving more thought to other considerations.

Adam Saskin is a corporate lawyer at Spiegel Sohmer with extensive experience representing both early stage companies and investors.