![]() ![]() ![]() Thus, this is a convertible note where the price is exactly $10M regardless of next round valuation) (in this particular SAFE the cap of $10M is the conversion price and even if the future equity round happens at a valuation less than $10M, the note will still convert at $10M. Issue $100k on a YC-SAFE note at $10M price.Here is how the process works for YC (at least from my knowledge of investing in one YC-backed company). We know this, because of our investment in Saleswhale (a YC company), and have first hand access to all the documents there. Regardless of whether YC SAFE works for/against the founder in the long run, one thing most founders (and even investors) don’t realise is that YC takes equity in the company first and then issues a note. While YC’s intentions may be good, there is a case to be made that the notes are causing harm to at least a few companies. However, investors in the US are also starting to voice their opinions on how the YC SAFE notes are doing more harm than good. The notes they created help in saving the founders from negotiating complex control and pricing terms too early in their company whilst protecting them from any hidden clauses that might lurk in documents served by an ill-intentioned investor. Suffice to say, that YC had very good intentions while issuing these notes. I will not go into the details of the famous notes issued by YCombinator, there is enough material on the internet for you to understand these. Worse still, the notes are being presented as a “founder-friendly” agreement and some unfortunate entrepreneurs are falling into the trap. One of these notes, modeled on the famous YC SAFE note, has been twisted to form a convoluted and extremely founder-unfriendly agreement. I want to discuss “SAFE” notes that are currently being issued by two well-known accelerators in the region. The biggest demerit for the investor is that we never really know how much we own in the company making life difficult for us, especially if the company issues multiple layered notes.īut this post is not about generic notes. The biggest demerit for the founder is the fact that a capped note in-effect hands over a full-ratchet anti-dilution clause to the investor. We have signed notes in the past, and will continue to do so in the future when the founder is insistent on doing things this way, but will definitely encourage each company we are investing in to consider the demerits of signing on a note. I’ll respond.Īs I mentioned in my earlier blog post, at GREE we prefer to sign on equity rather than notes, due to multiple reasons. ![]() In the post I’ll refrain from taking out names openly, but if you’d like to learn more, feel free to reach out to me personally on LinkedIn. ![]() I decided not to ignore these issues as most investors in the region are doing, and rather speak up openly about them. Lately though I have come across some notes that founders are signing with well-known accelerators, further strengthening my belief that notes are evil. If you have heard me speak publicly or if you follow this blog you’re likely familiar with my hatred towards convertible notes. Hidden terms in notes being used in Southeast Asia ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |