Announcing the Safe, a Replacement for Convertible Notes

Post by kg4lod » Fri, Dec 06, 2013, 7:07 PM UTC

tptacek wrote: post #29

kg4lod wrote: post #27

I'm an entrepreneur, so it all sounds great for me, but why would investors go for this? It seems like they give up a lot of down-side protection: (1) No ability to convert or abort in the absence of a QFE, (2) no more first creditor protection -- if the company goes under, but also has outstanding loans, investors don't participate in a share of the liquidation proceeds as they would as debt holders (3) no interest…

I'm assuming that the theory here is that the good investors are more concerned about being in on the next Snapchat or Airbnb, and a lot less interested in bolstering downside protections that only apply if an investment is going to be one of the unproductive ones anyways. Meanwhile, the good companies aren't going to be likely to entertain financing on anything but terms like these, so fighting them just incurs an a…

Post by ed » Fri, Dec 06, 2013, 7:15 PM UTC

acjohnson55 wrote: post #13

Anybody know how this compares to convertible equity schemes, like [1], which made front page last summer in a few stories? [1] http://techcrunch.com/2012/08/31/thefunded-founder-institute...

Post by [deleted] » Fri, Dec 06, 2013, 7:21 PM UTC

w4 wrote: post #19

jwb119 wrote: post #16

Earlier quoted context omitted.

An option, strictly speaking, has an underlying security that already exists. The Safe, like a convertible note, doesn't have an underlying security yet, since the company hasn't created the preferred stock that it would convert into yet.

Well, sort of. In a broad sense an option is simply an irrevocable right to acquire or do something, without an obligation to actually acquire or do it. You can write options for whatever you'd like, despite securities being the most common use. You're right about securities; the security usually exists prior to offering a contract on it. But even then it gets a little more complicated. For instance, I can write a na…

Post by w4 » Fri, Dec 06, 2013, 7:24 PM UTC

jwb119 wrote: post #31

w4 wrote: post #19

Earlier quoted context omitted.

Well, sort of. In a broad sense an option is simply an irrevocable right to acquire or do something, without an obligation to actually acquire or do it. You can write options for whatever you'd like, despite securities being the most common use. You're right about securities; the security usually exists prior to offering a contract on it. But even then it gets a little more complicated. For instance, I can write a na…

Right, but I wasn't speaking in the broad sense. In the legal sense, an option has to have a very specific underlying security. That's the case with even a naked option - you know exactly what the underlying security is. The Safe is substantively different because the underlying security isn't defined at that specific level. But agreed, kudos to YC :)

Post by acjohnson55 » Fri, Dec 06, 2013, 7:34 PM UTC

ed wrote: post #34

acjohnson55 wrote: post #13

Anybody know how this compares to convertible equity schemes, like [1], which made front page last summer in a few stories? [1] http://techcrunch.com/2012/08/31/thefunded-founder-institute...

Safe is probably favored to become the standard vehicle for seed rounds, a benefit of being sponsored by YC. Investors will require less convincing and at first glance Safe seems to be at least as good as convertible debt (as fast and cheap as convertible debt, with no promise of repayment).