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The Inveterate Veteran

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The Inveterate Veteran
Inveterate Veterans' Thoughts
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What's wrong with SAFEs?

As an Angel Investor, I deplore SAFEs. I know that they are all the rage. I also know that this probably means that I'm an unsophisticated investor. But all the same, I deplore SAFEs.



Sure, when they first came out, I invested on them. But over the past two years, if I am investing on a SAFE or a KISS, I require a firm date by and a total amount raised for when my note will convert into equity (along with requiring a valuation cap).




However, in the past 4 months I have received SAFEs from 4 separate startups which provide significantly more risk than the original SAFEs because: they don't have a valuation CAP, the SAFE converts over to equity is only a change of control, selling of preferred shares at a fixed valuation, and if there is an IPO. But, if an underwriter service, which sells shares through it’s network is used, the shares also don’t convert pre-IPO.




Plus two of the companies that have sent me notes have a clause that allows for the company to change into a nonprofit and if this occurs allows for the reduction of a payout (or the complete lack thereof).



Look, I get why entrepreneurs use SAFEs. I don’t think that the majority of entrepreneurs today who are using SAFEs are trying to pull the wool over angel investors’ eyes. In fact, when I last successfully raised money for a startup I co-founded, I used a SAFE. But, what started out as a type of note which made it easier for entrepreneurs to raise seems to have turned into a note that only the most naive of angel investors would sign.



Joshua has 3 exits and is an angel investor. You can follow him on Twitter @AlertingMainSt and connect with Josh on LinkedIn.

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PostedOctober 29, 2020
AuthorJoshua Lawton

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