Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Convertible and SAFE notes

avc.com

Post reply on HN
Print view View original

31–40 of 50 posts

Re: Convertible and SAFE notes

#31

Post by hkmurakami »

pbiggar wrote: post #10

I really really dislike when VCs make a pro-investor claim and try to hide it in founder-friendly terms. Priced rounds are great for VCs because they remove all their risk. But they don't remove any founder risk. Do a down-round after a priced round and you'll wish you were just taking more dilution from a SAFE. > "1. They defer the issue of dilution until a later date". When the company is doing well, notes allow fo…

>> "3. I cannot tell you how many angry pissed off angel investors [..] they own a LOT less than they thought they did."

>And here we get to the crux of the issue, investors own less. If investors own less, who owns more? Founders do.

I think in this case there are just "more investors than the earlier investors expected to exist".

In any case, if there's a subsequent convertible round after the round you were in, of course there will be more dilution for the angel! And honestly if the subsequent noted were raised at higher caps comparable priced rounds, then the dilution to the earlier angels should be less anyways. This just sounds like optimistic angels not understanding the equations they are a part of.

Frankly said angry Angel should recognize that any subsequent round dilutes them and the founders in similar fashion, and any instrument that is "founder friendly" is existing investor friendly as well by definition.

Re: Convertible and SAFE notes

#32

Post by pbiggar »

hkmurakami wrote: post #31
pbiggar wrote: post #10

I really really dislike when VCs make a pro-investor claim and try to hide it in founder-friendly terms. Priced rounds are great for VCs because they remove all their risk. But they don't remove any founder risk. Do a down-round after a priced round and you'll wish you were just taking more dilution from a SAFE. > "1. They defer the issue of dilution until a later date". When the company is doing well, notes allow fo…

>> "3. I cannot tell you how many angry pissed off angel investors [..] they own a LOT less than they thought they did." >And here we get to the crux of the issue, investors own less. If investors own less, who owns more? Founders do. I think in this case there are just "more investors than the earlier investors expected to exist". In any case, if there's a subsequent convertible round after the round you were in, of…

> This just sounds like optimistic angels not understanding the equations they are a part of.

I agree. I edited out of my rant the fact that investors are supposed to be sophisticated. Everyone knows what they're getting into here. Angels are typically way more sophisticated than startups (if you've done 1 deal that's usually 1 deal more than a founder has). If you can't do the math on this you shouldn't be investing in startups.

Re: Convertible and SAFE notes

#33

Post by fredwilson »

pbiggar wrote: post #10

I really really dislike when VCs make a pro-investor claim and try to hide it in founder-friendly terms. Priced rounds are great for VCs because they remove all their risk. But they don't remove any founder risk. Do a down-round after a priced round and you'll wish you were just taking more dilution from a SAFE. > "1. They defer the issue of dilution until a later date". When the company is doing well, notes allow fo…

I wrote this from the heart. You can ascribe whatever agenda you want to believe. But I wrote this for founders and it is based on thirty plus years of working with founders. I don't want to see them get screwed and notes screw them over a lot

Re: Convertible and SAFE notes

#34

Post by fredwilson »

kirillzubovsky wrote: post #20

It's great when a VC makes a pro-VC argument and without any hard data cites feelings as the reason why founders should do what he says. AVC has some great ideas, but sometimes it's pure propaganda. If you're just raising a small seed in order to get something going, what's more important than moving fast and getting the product to market?

This is not a pro VC argument. You may want to believe that. But that's not what I'm trying to say

Re: Convertible and SAFE notes

#35

Post by fredwilson »

kirillzubovsky wrote: post #20

It's great when a VC makes a pro-VC argument and without any hard data cites feelings as the reason why founders should do what he says. AVC has some great ideas, but sometimes it's pure propaganda. If you're just raising a small seed in order to get something going, what's more important than moving fast and getting the product to market?

This is not a pro VC argument. You may want to believe that. But that's not what I'm trying to say

Re: Convertible and SAFE notes

#36

Post by fredwilson »

kirillzubovsky wrote: post #20

It's great when a VC makes a pro-VC argument and without any hard data cites feelings as the reason why founders should do what he says. AVC has some great ideas, but sometimes it's pure propaganda. If you're just raising a small seed in order to get something going, what's more important than moving fast and getting the product to market?

This is not a pro VC argument. You may want to believe that. But that's not what I'm trying to say

Re: Convertible and SAFE notes

#37

Post by fredwilson »

lpolovets wrote: post #30

(I'm a seed-stage VC, but as a caveat I'm not an expert when it comes to cap tables.) He's an example of where having many notes can hurt founders: - Raise $2m at an $8m cap, 15% discount. - Raise $2m at an $18m cap, 15% discount. - Raise $2m at a $28m cap, 15% discount. - Sell 20% of company for $X in the Series A. Caps are "sort of" like pre-money valuations, so the founder might expect that their dilution from the…

Thanks for laying all of this out. I guess we will have to do more of this to get this crew here to understand what I'm trying to explain

Re: Convertible and SAFE notes

#38

Post by purpleostrich »

graycat wrote: post #29
sandGorgon wrote: post #21

Earlier quoted context omitted.

Also the biggest issue - it defers the question of valuation. That is a huge thing in pre-product/pre-traction stages when valuation is what you believe in. 99% of first time entrepreneurs have a simple question - "how do you value an idea, an early stage startup": It completely eliminates this question.

There should be better ways to know how to "value an idea.". I believe that there are better ways, that the VC-startup world does poorly there with biggie costs on the both sides of the table, that there are some good examples of the ways, and that, really, we are awash in both how to do this and examples. First, we start with evaluating ideas. Gee, guys, the research community does that many times daily. A researche…

Thank you graycat, for the excellent thoughts and analysis.

I doubt you are a VC but maybe you should start your own firm.

Re: Convertible and SAFE notes

#39

Post by fredwilson »

beambot wrote: post #16
3pt14159 wrote: post #12

> They defer the issue of valuation and, more importantly, dilution That's what the cap if for. If the founder is 19 years old, fine, read a book on it (I recommend this: https://www.amazon.com/Funded-Entrepreneurs-Guide-Raising-Fi... but basically any will do) but angel investors that don't know what caps are are dumb angels. > They obfuscate the amount of dilution the founder(s) is taking. Also what a cap is for. U…

> The first convertible or SAFE note issued in a company should have a cap on the total amount of notes than can be issued. A number like $1mm or max $2mm sounds right to me. By "cap" in this context, I believe he's referring to the aggregate amount of convertible notes.

Yes

Re: Convertible and SAFE notes

#40

Post by fredwilson »

beambot wrote: post #16
3pt14159 wrote: post #12

> They defer the issue of valuation and, more importantly, dilution That's what the cap if for. If the founder is 19 years old, fine, read a book on it (I recommend this: https://www.amazon.com/Funded-Entrepreneurs-Guide-Raising-Fi... but basically any will do) but angel investors that don't know what caps are are dumb angels. > They obfuscate the amount of dilution the founder(s) is taking. Also what a cap is for. U…

> The first convertible or SAFE note issued in a company should have a cap on the total amount of notes than can be issued. A number like $1mm or max $2mm sounds right to me. By "cap" in this context, I believe he's referring to the aggregate amount of convertible notes.

Yes
Post reply on HN