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Convertible Notes/ SAFE Notes Vs. CCPS or Equity - the hidden story

Convertible Note/ Safe Notes

I’ve been seeing many early-stage VCs / HNIs using convertible / SAFE notes financing.


Should you be choosing them over Equity or CCPS?

SAFE came into vogue in late 2013 for 2 reasons:

> Reduce legal and administration costs

> Reduce back-and-forth on valuations

Here’s how they can go wrong:

SAFE instruments can often get abused and may end up abusing you later.

Multiple rounds with multiple caps can make the cap-table extremely messy and founders tend to lose track of their dilution.

How long will ‘kicking valuation down the road’ help?

Valuation events are healthy. Both discover what gives a business its value and align on the long term objectives.

SAFE is not great for everything.

SAFE notes are great for bridge rounds, but when used as a substitute to ‘venture financing’, they end up becoming dumb money.

Is there an alignment problem?

Investors want a low valuation.

Founders want a high valuation.

This non-alignment could mean reduced flexibility to scout/ wait for better deals.

Lead equity investors do add value.

A Lead equity is a pretty potent role. Validation. Diligence. Deliberations. Don't discount the value of that.

My advice:

👊 Be SAFE in moderation.

Have some questions on how to not make rookie mistakes?

Drop me a hi on [email protected].


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