I created the original SAFE Note. It was designed to replace convertible debt, which was being used for all early stage financings from 2002 to 2007. The original purpose and purpose still today is to be a fast and easy financing vehicle for early stage companies without creating a preferred class of equity, which can cost tens of thousands of dollars.
There is the original intent and there is the MONSTER that SAFES have turned into. They have turned into lazy man's fundraising. They are not as investor-friendly as convertible debt (no lien on assets, not on the balance sheet), and many companies are overusing them. Many companies are staying on SAFES for 2-4 years which IMO is a mistake. I counsel all my companies to not raise more than 25% of the amount you expect to raise in a priced round on SAFES. Huge SAFE overhang actually ends up hurting your priced round fundraising. I saw a deal a couple months ago that had $9M in SAFES at 28 different caps (up and down) and they were trying to clear it out with a $3M priced round. The round didn't happen because no one could figure out the cap table.
What started as simple can become complex if over used. Be careful. I am hoping we are entering a time when investors are pushing for priced rounds sooner to keep cap tables clean and understandable.
Thank you Martin, I couldn't agree more...
Jun 24, 2023 12:28am
Similar experience and they are not as simple as they used to be. Stil prefer simple convertible notes in most cases