Thread by @rlj_law

🔥 Some words of caution for founders thinking about using @YCombinator Safes

THREAD...

#DisruptSF #FounderFriendlyStandard

@ycombinator 1/ If you want to run your company for a long time, you’ll need control. You’re unlikely to lose control if you can maintain ownership of 80 - 95% of your company. If you’re down to 40 - 55% of your company after your first round of financing, control can slip away fast.

@ycombinator 2/ Raising too much on a Safe, especially with a high discount or a low valuation cap, is a quick way to give away too much equity.

@ycombinator 3/ Safe terms can obscure the math over how much of your company you’re giving away, because you’re not giving away a fixed percentage of your company. How much equity you’re giving away won’t be determined until your next round of financing.

@ycombinator 4/ Sometimes along with Safes, investors ask for pro rata rights, which give investors a right to invest in the company’s next rounds of financing.

@ycombinator 5/ You might say, “What’s wrong with giving investors more of just an opportunity to invest at that same rate as new investors?”

@ycombinator 6/ The problem: Some investors might not be adding value anymore, and you don’t want them squeezing out new investors who are adding not only new dollars but also potential connections and guidance.

@ycombinator 7/ The terms of a Safe not only impact you today, but they can impact your next round of financing. Signing a Safe is something that should be done with a lot of care and consultation of a lawyer.

@ycombinator 8/ You can view my comparison of the @YCombinator Safe to the #FounderFriendlyStandard here: eisaiah.blog/founder-friend…

@ycombinator 9/ In the final analysis, Safes are wonderful instruments for efficiently closing startup investments on fair terms. Their simplicity and standardization can, however, lead founders to rush into them with adequate reflection or guidance.

@ycombinator 10/ Experienced founders, what words of caution would you share with the #DisruptSF audience and beyond about accepting investment (especially with Safes)?

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