I think Pawel’s answer eloquently explains all the technical reasons why.
Let me simplify further: convertible notes are there to simplify your life — at the expense of some deferred legal maintenance. Down the road. A good trade-off, especially in the early days.
And with convertible notes, investors really have no idea exactly what they are buying. They just have a rough sense of the price, and no idea at all of the terms. If the sums are small, that again simplifies your life.
If it’s a small check, and/or a check where the precise terms and price don’t really matter that much — notes and SAFEs are great. That’s why they work so well for smaller rounds at YC, etc.
But once the check sizes get larger, investors care about terms and precise price, as Pawel outlines.
Well, the only “so what” is that will add stress to the transaction. You want to just get it closed. This is sales, folks. Sales of stock. So once the terms are fair — close the deal. 🙂 And as check sizes cross $1m, almost any investor won’t want to do debt or SAFEs.
After $1m or so, you can push them. They may still do it. But it will add stress to the transaction. Stress = risk.
Why do that?
That’s the opposite point of notes and SAFEs.
Just get it done.