SAFE

“So as a pre-seed and seed investor the kind of B minus VC investors will want to get that next round on a priced basis to get that gap markup. But if you actually care about the economics and making money in the long term, you want the next round on a safe bec…”

“Like safes are the dominant way to get money into a business. Now, anything under four million dollars is dominated by safes. Where it used to be, you'd start on safes and then you'd raise a seed, but if you're raising two and a half, three, four million dolla…”

“As long as it's one safe, you start stacking safes. And I just don't like the confusion that that brings to, you know, what does that actual ownership, you know, look like? Like when I'm giving out ESOP, what percent am I really giving?”

“If you took a bridge on a safe or a note after you had already raised price funding, so this is all about priced seeds to price series A, the percentage on the convertible bridges was four percent.”

“Yeah, so we're raising seven 50, and we just started and so we're doing a safe and the cap is five million, so we're just starting with that.”

“It's a safe, and it was like, 10 K, so it wasn't too much, but.”

“After the seed round, we pivoted ideas and had to raise a million dollars in safe kind of funding, and we made a conscious choice to not, you know, work with VCs, not work with other entities, and raise from users of the product, so top real estate teams”

“Capital One just came out and said they got rid of all their Agile roles, all their Scrum roles. They were an early adopter of safe. They don't do it anymore.”

“Executives buy SAFE because it is the only framework out there that basically draws them a map and says, plug and play, do this. And that's why everybody's so excited about it because it's the only thing that specifies things to this level.”

“I have not seen SAFE slowing down by any means out there for people adopting it. I see more and more organizations adopting it.”

“And that's what I think SAFE was trying to do, but it's not working because it's not solving the problems of the product management, and it's not solving that problem of connecting the value Back to the product teams. Instead, it's seen as a role that almost l…”

“Every single person I have talked to Who like safe found success with safe. They ended up ripping it up and making it into something else. So I'm like, it's not actually safe by the book.”

“There's actually a great story about a water company in the Netherlands, right? And they decided to adopt safe. And this is, this was on the news like a couple months ago. They decided to adopt safe in their IT teams and start working with it. And they're they…”

“McKinsey made a huge division to do this. And a lot of safe was actually introduced to organizations from McKinsey and from large organizations. Consulting organizations like that.”

“And so safes pretty much crossed 75% of early stage funding, if we're talking about like pre-seed and seed, effectively in, in early twenty-twenty-two.”

“Something like 30% of the time you don't exceed it and you raise on a valuation that's less than the valuation cap of your most recent save.”

“So we are raising on a safe. It's a nine million post cap valuation, 20% discount. We're at 850,000.”

“And by the way, if you're raising 500 can a price round, you should probably do that on safes anyways. You're going to save a lot on legal costs for how big that round is.”

“It's pretty easy to see in the data that if you're raising about a million dollars on a safe, the median valuation cap on Carta is a ten million valve cap. So ten million valve cap, one million raised. So that's a 10% ownership stake for that safe investor in …”

“You should use them once, maybe twice, and then don't be afraid of price rounds. Cause they actually make, they clean the cap. They make everyone understand their ownership really succinctly. And then everyone shares in that dilution of the following fundraise…”

“Safe rounds, pretty clean. We can do it in as little as a few days, and we have done it. And then in some cases where there's complex, you know, we have quite a few cross geography companies. So all our companies are US market focused, but we have quite a few …”

“No, our valuation was ten million dollars and we did like one million round on safe.”

“The amount of the investment, the valuation cap of the investment, and then the discount. And guess what? Nobody does discounts. So there's only two terms that you really need to discuss when closing a safe.”

“The founders of Asher came into YC with just the idea. And they were able to raise the first round of funding using safes quickly from angels. This is pretty novel for a biotech company. And using that first million or so that they raised, they could accelerat…”

“Founders have had more, have more control over their companies today than ever in the history of startups. And why is this? It's because when you raise with safes, you don't give up any board seats. All right. There's no board seat nonsense in safes. After you…”

“And we're also, we're doing it on a safe, so it has a higher cap.”

“And that's why you see, like you might look at something like safe and say, are these people fricking crazy? Are they nuts? There is no good there. It is just all, it's just repackaged waterfall.”

“The pre-seed round, we raised three million on a fifteen million dollar, you know, post-money valuation cap on the safes.”

“We have a floor of two two dot five million floor and eight million of a cup.”

“It used to be 20%. Now we're hearing about a lot of 15% discount saves, and it's like, holy smokes, you're putting the riskiest dollars that are ever going to go into that company in for a very modest return. Now you're on the cap table, and you can put more m…”

“You can do 1.2 million of safe, but in the Indian market, you know, it's not that easy. Like usually the rounds get price”

“Most of the early stage instruments, convertible notes and safes really are orientated around the idea that you will raise another round. And if you don't raise another round, They either do stuff that's, you know, not great, like accumulate interest indefinit…”

“So we don't put a cap. We believe we'll take a smaller piece of a larger pie. We don't want to, and caps usually turn into limits for future rounds. We don't want to get into that game. We'll let people grow their company as large as they can.”

“We're usually waiting until there's a round of, with evaluation of a million dollars. Raising a million dollars. Valuation much higher.”

“Definitely not for the seed. I would just raise the seed on all safes. For the A, try not to add to the board, and then maybe the B. Often you just don't have a choice. A lot of investors will require being on the board. There's kind of a luxury having the cho…”

“In some respects, because number one, it's so easy to raise money on a safe, you often find people do what are called rolling closes, which is, you know, usually on a priced round, we're like, this is your date, right? Get your money in by June 30th or else yo…”

“I think you can accomplish the same efficiency goals with there's a thing called series seed, which is a very, very lightweight way of doing an equity deal. So, you know, I just would encourage entrepreneurs to make sure if they go that route, they really do p…”

“Debt was not a great model for this. It was sort of an accidental thing that were, that was used for bridge rounds, and it wasn't really meant for angel, for equity investing, and that's why we moved from convertible notes to safes.”

“Carolyn Levy at Y Combinator invented the safe or simple agreement for future equity”

“It is really dangerous to choose too high a valuation. And in fact, it can kill your fundraising, because it's quite difficult to go to, ah, an investor who might kind of be interested, and you say, I'm gonna raise at a twelve million dollar cap. On my safe. A…”

“So my ideal preference is to do a price round. My second preference is to do effectively a safe. My dislike is of the convertible debt. I think it's ultimately, it's a lose-lose for both sides when things don't go so well.”

“Why would you do a safe? Well, because it's simple, it's easy, it's fast, and it's cheap. It's better for founders.”

“Carolyn is the Is the person who actually invented the safe. She used to be attorney at Wilson Sonsini before coming here, and Kirstie is the CFO of YC.”

“A time when you may not want to use the safe is if you are looking at a company that has already issued convertible promissory notes to earlier investors, and if that's the case, you're going to want to go ahead and just use that same note, not use the safe, a…”

“One of the most important things, I say this a lot, the safe is not a loan. It is not debt. It does not accrue interest. There is no right to be repaid at some point in the future at some maturity date. So please don't call it a safe note.”

“Typical discount rate ranges in between 10 and 20%, so for example, ah, if the series A round that your SAFE is converting in is the lead investor has priced it at a dollar per share, and you've negotiated a 20% discount, your effective price is 80 cents a sha…”

“They think it's a current valuation of the company. That's really not what it is. All it is, is a way for you to be rewarded for coming in at the earlier stage, ah, when in theory you're investing at a riskier stage.”

“Next thing is that the safes convert into shares, and although the safes themselves don't, ah, state this, the term sheet will usually specify that the safes convert in the pre-money.”

“In a dissolution situation, not only is there never any money for stockholders, but there's rarely enough to pay back investors either.”

“If you want to fund lifestyle companies, You definitely do not want to use the safe, because then you're going to have this problem all the time.”

“This is a contractual right. You're breaching the contract if you do not give the safe holders their pro rata right.”

“You don't even need a PPM these days to do a priced round. Nobody, nobody really does those anymore. SAFE is just one document. That's all you need. For a priced round, it's usually just a term sheet.”

“Series A lead investors are getting more clever about this and realizing that if the safes convert in the pre-money, then the, Lead investors getting less dilution. And really all that's happening is if the safes do convert in the round, they'll just massage t…”

“About lifestyle companies and why I think the safe is preferred in general to debt is because we've seen too many times where the fact that there's debt there is used to kill a company that didn't have to die. And it's too easy for investors to call that debt …”

“Safes, convertible debt, they're all kind of based on future guesses. You kind of figure out the dilution later. It allows for this continual raising process that, you know, I know YC's talked a lot about that I think can be a huge distraction.”

“I do. I think they're pretty much just as bad.”

“I like them a lot. I think actually this is the new wave of investing.”

“Oh, they're okay, but it's kind of like alcohol, and it should only be used in moderation.”

“In true YC fashion yeah, we do it all in safes.”

“Now it's one 20, 20% or 20,000 dollars of it is invested in common share. So it's a priced round. And then the other a 100,000 dollars is invest, invested on a safe.”