Safe - Product Stars
Best products of October 2018


Convertible debt, without the debt

Upvotes 15 PH Page >
Nathan Bashaw
To me this feels like a product, in the same way a free app is a product. They don't directly monetize, but you can use it and get value out of it. Curious to hear from folks who've raised money - do you see any disadvantage to using a Safe rather than a regular convertible note?
Dan Friedman
@alexschiff - I'm interested to hear your thoughts.
Alex Schiff
It seems very similar to convertible equity which was put out awhile ago. Does anyone know what kind of adoption that has had? The problem is investors, especially more traditional ones, don't like docs that are not standard. You might end up spending even more in legal fees even if the docs are easy just because the lawyers are going through them with a more fine tooth comb. either way I think something like this is inevitable, eventually, or priced rounds are going to get so easy it doesn't matter.
Frank Denbow
This is really interesting. I've been reading a lot about this recently and one of my biggest concerns with convertible notes was the risk if things a) dont go well and the insolvency threat or b) go well enough to run off of revenue past the maturity date (shouldn't that be the goal of most companies?). Although the safe does seem to handle those two scenarios, I wonder how investors would feel about it. I have already heard from some investors how they hate convertible notes, since the early angel investor is taking on much risk without enough direct reward (even with a discount and cap). As an entrepreneur the goal isnt always to get the "best" terms for yourself, but to create a scenario where everyone involved is sufficiently committed / motivated. Really curious to the investor reactions to it.
Nathan Bashaw
That's a great point! Even though founders are getting more relative power, investors still have a lot of leverage. Curious to hear your thoughts on this, @joshelman
Ryan Hoover
Pulling in @hnshah, @abramdawson, @Enderdoon, and @byosko in as well. Thoughts?
Adam Lieb
I never buy the sales pitch for any legal instrument that touts "faster/cheaper because there is no need to negotiate." I've raised money with widely propagated term sheets, they always end up being negotiated. To me this just sounds like a way to get rid of a couple annoyances with notes (interest, maturity, and insolvency). Investors should be worried about early liquidation events. Many will likely want extra rights to protect against acquihires (negotiation!).
Kevin Li
i would use
Kevin Li
@adamslieb don't forget the debt part, we had to deal with that at my last startup
Josh Elman
I think there some risks with the technical nature of debt as a way for Startups to fund themselves. In that it does mature, or require interest if not converted in a year, etc. I don't know enough yet about "safe", but something like warrants does seem much closer to the intent of convertible notes than debt itself.
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