One of the concerns I've heard from many founders and funders is that convertible notes or securities can place the founders at odds with the early investors when it comes to company valuation. In this case, the concern still remains whether the conversion is a note or a security.
The founders would want the company to have as large a valuation as possible at the conversion event so that the equity ownership for the amount raised is at a maximum for the founders. But the early investors (holders of the convertible note or security) would want the company to be valued lower so that their investment is converted to give themselves and not the founders greater equity, or at least up to the cap amount, if one exists.
And with regards to the cap, there's the issue that the investors are converted at a potentially much higher total equity stake than they would get if the cap didn't exist. This is because every dollar of valuation above the cap goes to increase the early investor's stake in the company at the expense of the founder who must convert them at the cap level. So the founders are thus disincented to increase the value of the company to any amount greater than the cap so as to have a conversion at a favorable level.
As such, this means that in practice the cap becomes a defacto valuation for the company at its next funding round, which is at odds with the concept that a convertible note / security allows the founders to defer the determination of the value of the company. The reason for this is that if a cap exists, the founders would not want a valuation greater than the cap as they would be rewarding the early investors at their own loss. It would not be less than the cap because then they are negotiating for a lower valuation, which is against their interests. And so, it would be precisely at the cap amount, which thus becomes the valuation.
To me, this still represents an issue with convertible notes or securities -- the placement of founders at odds with early investors with regards to valuation of the company at the conversion event.