“Looking back, Makible was a very successful venture, but ended up in a bad way due to a lot of different reasons.” Convertible debt was just one of the things that caused trouble. But, to answer your friend’s response, we did have everyone at the table, but their requirement was that if new money was brought in, they would take it off the table and exit. By holding this stance they effectively created a Catch 22 type of situation where we needed new funds to come in, but if those funds came in they would not be available for what we needed. In order to resume operations safely, it would have taken a significantly larger sum of cash than what was actually required.
The other side of that is that your friend is leaving out is the fact that many times investors may not be driven purely by financial return. They may not be playing the same game everyone else is. In this case, at least one of the people simply sent a letter as advised by their lawyer to state their rights, but they didn’t intend to use them. Another just got into a mindset of all or nothing, they had written it off. Your friend’s response is a very textbook answer, that may be logically correct, but people, unfortunately, are not always logical.
On the side of managing cash flow, we had a deal on the table that would have kept things running, however, two of the directors at the time decided that the deal was a compromise they did not want to accept responsibility for. In a naive move they resigned rather than voting or abstaining on the deal. In response, when the investor that offered the deal was told that two of the directors had resigned on the day that the offer was given, withdrew the offer. But, again, that was just a nail in the coffin.
The story is much longer and deeper than will be told here. The point of the post was not to describe the full arc of what happened with Makible, but to simply give support to helping educate people about convertible debt and some of the real potential issues with it while supporting the SAFE structure. I think that most people might consider the issues, just like your friend, but would not put a high risk on those actually happening.