The post-money SAFE is a study in the power of defaults.
Back in 2018, founders were overwhelmingly using the pre-money version of the SAFE (when they weren't using convertible notes, that is). But when YC introduced the post-money version on their website in late 2018, things changed quickly.
The post-money SAFE ate up market share and now 83% of all SAFEs are post-money.
𝗪𝗵𝘆?
1. Post-money is clearer. It is fairly simple to know how much of the company is bought and sold using a post-money SAFE (example: If you raise $1 million on a $10 million cap, you sold 10%)
2. Defaults matter a lot. Founders don't typically want to innovate on legal docs - they want to fundraise to build their companies. So if the YC website offers only the post-money version to download, they'll go with that.
Of course the whole world of SAFE fundraising has gotten much more messy over the past 7 years. Founders are raising much more capital on SAFEs before hitting priced equity (and doing so over multiple different valuation caps).
Inherent in the switch to post-money is a tilt towards investor friendliness. In a pre-money world, the SAFE investors would be diluted by any other SAFE investors that joined the cap table. Not so for post-money, where SAFE investors of all different caps and discounts are treated as one "round" in terms of dilution.
Trade-offs! Post-money SAFEs offer simplicity, clarity, and speed at the expense of a sprinkling of anti-dilution.
Coordination costs have also declined thanks to SAFEs (as founders close a deal with one investors without having to round up a whole group of them at once for a full round). Benefit: speed. Downside: kinda always fundraising.
Interesting history lesson 😁
#startups #SAFEs #founders #venturecapital
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