YC companies are the cream of the crop and have YC's backing, so are in a different position to many other startups also getting funding.
YC companies are likely to be in a stronger position for debt to get converted or extended than most startups. They're more likely than the general market to be good quality companies in a stronger negotiating position, and Angels aren't likely to burn YC. Plus it's fair to say that they have the cream of Angel investors, who are likely to act in a reasonable way.
I think Adeo's argument is about what happens to the bulk of the market - so applies more to all the others. YC companies have been the exception to many a rule.
I hope it proves to be wrong. But if there is a panic/bubble-burst and a herd mentality develops to rush out of the market, it's reasonable to expect many individual angels will lose their nerve and want out, at least beyond the top end of the market represented by the YC startups.
No one could "rush out of the market" even if they wanted to. Adeo's article is about the case where the startup doesn't have the cash on hand to pay back the angel. At best (or rather worst) a panicking angel could get the startup's IP, and good luck selling that without the people.
You seem to be assuming that startups will run out of cash at exactly the moment that their convertible debt becomes due -- maybe this sometimes happens, but I can't help thinking that it would take exceptionally good planning (or a lot of luck).
I know there have been cases where startups have decided to shut down and return their remaining cash to investors (including some YC companies, I think); what happens in the case where a convertible debt holder thinks a startup should take that option but the founders aren't ready to give up?
In practice it usually amounts to that, because the term of a typical convertible note is a bit longer than the amount of time a typical funding round is expected to last.
Ok, but what if a company takes two rounds of convertible debt? Wouldn't the first one expire while the company is still burning through the second round?
Or is it standard practice when a company raises a second round of convertible debt to extend the maturity of the first round?
Two rounds of convertible debt does not really happen, practically, since debt is the most senior security in a company. An investor doing more debt at a later point would not have much advantage over an investor that did debt in the first place. As a result, there is no premium for coming in earlier, when it is more risky. Early debt holders block issuing more debt, generally.
As cperciva mentioned too, it's about the potential desire to cut losses and get out, and the damage that could do. I don't disagree that the Angels trying to cut their losses would get little back and there would be no value in rushing out. But in a panic logic is seldom the driver.
In your experience, would most startups survive if their angel investors with convertible debt wanted out, even if the cash wasn't there to repay it anyway and there were no tangible assets to sell?
Adeo's post reads to me as being a warning about the potential fallout in a context where people want out. I don't think there is much argument that the Angels wouldn't recoup much anyway. But neither is that the case when people sell public stocks that they've acquired at the top of the market when it hits the bottom. But even professional investors do that too with predictable regularity.
YC companies are likely to be in a stronger position for debt to get converted or extended than most startups. They're more likely than the general market to be good quality companies in a stronger negotiating position, and Angels aren't likely to burn YC. Plus it's fair to say that they have the cream of Angel investors, who are likely to act in a reasonable way.
I think Adeo's argument is about what happens to the bulk of the market - so applies more to all the others. YC companies have been the exception to many a rule.
I hope it proves to be wrong. But if there is a panic/bubble-burst and a herd mentality develops to rush out of the market, it's reasonable to expect many individual angels will lose their nerve and want out, at least beyond the top end of the market represented by the YC startups.