Files & Resources: breakingintowallstreet.com/kb/venture-capital/safe-notes/ Table of Contents: 0:00 Introduction 1:54 Part 1: SAFE Notes in a Seed Round 3:26 Part 2: Conversions in the Series A (Caps and Discounts) 8:54 Part 3: How an Options Pool Makes It Even Worse 10:32 Part 4: Are SAFE Notes Worth It? 12:39 Recap and Summary
Great video. I work with startups and the temptation of SAFEs is still high. I'd say that it is addictive as founders don't realize the consequences of dilution at the time of financing, for many SAFEs equal free money. I am also member of a group of investors and we have an investment policy which excludes investments in SAFEs.
@@financialmodeling You put your money against the possibility to convert it in equity if certain events take place in the future (with no limit of time). In the meantime, you have no rights whatsoever, unless you negotiate side letters and the the simple becomes complex. As an investor, no thanks.
how do you calculate the purchase price per share of either alfheim capital or asgard capital using both a conversion discount rate and a valuation cap? For example, if we look at Asgard Capital, would it be the valuation cap (10,000,000) divided by the total shares in the post-seed round table (1,333,333) multiplied by a given conversion rate (for example, 20%)? It would look like (10,000,000/1,333,333)*0.8 Does this work or did i get it completely wrong?
If there's both a conversion discount and a valuation cap, you calculate the share price under both methods and then take whichever one is lower, as the lower price is better for the investors. So in this example, if these firms were a single investor, we would just use the $6.00 share price from the 20% conversion discount since that's a better deal than the $7.50 share price from the valuation cap.
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Files & Resources:
breakingintowallstreet.com/kb/venture-capital/safe-notes/
Table of Contents:
0:00 Introduction
1:54 Part 1: SAFE Notes in a Seed Round
3:26 Part 2: Conversions in the Series A (Caps and Discounts)
8:54 Part 3: How an Options Pool Makes It Even Worse
10:32 Part 4: Are SAFE Notes Worth It?
12:39 Recap and Summary
Best description I’ve seen, out there. Thank you.
Thanks!
Great video. I work with startups and the temptation of SAFEs is still high. I'd say that it is addictive as founders don't realize the consequences of dilution at the time of financing, for many SAFEs equal free money. I am also member of a group of investors and we have an investment policy which excludes investments in SAFEs.
Yes, this is very true. I think SAFEs are actually worse for investors because of their ambiguity in the capital structure.
@@financialmodeling You put your money against the possibility to convert it in equity if certain events take place in the future (with no limit of time). In the meantime, you have no rights whatsoever, unless you negotiate side letters and the the simple becomes complex. As an investor, no thanks.
Thank you so much, I cant believe this is out there for free :)
Thanks for watching!
We missed you!!! Its been awhile since the last video
Thanks. Planning to be more active this year and shift more activity to this channel!
This is so detailed and informative. Thank you so much
Thanks for watching!
how do you calculate the purchase price per share of either alfheim capital or asgard capital using both a conversion discount rate and a valuation cap?
For example, if we look at Asgard Capital, would it be the valuation cap (10,000,000) divided by the total shares in the post-seed round table (1,333,333) multiplied by a given conversion rate (for example, 20%)?
It would look like (10,000,000/1,333,333)*0.8
Does this work or did i get it completely wrong?
If there's both a conversion discount and a valuation cap, you calculate the share price under both methods and then take whichever one is lower, as the lower price is better for the investors. So in this example, if these firms were a single investor, we would just use the $6.00 share price from the 20% conversion discount since that's a better deal than the $7.50 share price from the valuation cap.