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SAFE Rejected


I’ve have engaged Angels and VCs over the past 18 months and nurtured these relationship to where now we are presenting them with an opportunity to participate in our raise via a SAFE.

I’ve had a good response but was taken back by some VC’s stating “we CAN’T do SAFEs.”

What do we believe their positioning is against the SAFE and a suitable response?

Paul O'Brien Changed status to publish February 21, 2022

Really a wonderfully timed question while our cohort with Italy is covering fundraising today!  cc @frankcoppersmith  @christrinetti  @john-zozzaro  

Has that resistance been for pre-money SAFEs? I have seen some investors push for the post-money agreement due to the impact on dilution.


Some investors are weary of SAFEs because they have not been tested in the courts. Convertible loans, the “standard” way of raising small rounds, have a large body of law to support its enforcement should something go awry. Also, SAFEs often do not contain clauses investors are used to or are different than what they would consider the norm. The SEC has recently written an article warning investors about SAFE so expect more pushback (included below). I have not used SAFE notes. I took a look at the two competing documents, SAFE and convertible loan, and did a deep dive on the differences. One notable difference is the lack of a time horizon/maturity on the SAFE, enabling you to take longer to raise and to avoid the down round. This can also be achieved through a convertible loan by lengthening the terms. There is no rule that convertibles need to be 2 years and pay 8% interest. What I did was to tell investors I was deciding between SAFES and Convertible and decided to choose convertibles because it is a more trusted form of investment, but I tweaked the terms to give more flexibility while aligning risks for both sides (4 or 5 year terms, low or no interest, added cap, keeping in rights of first refusal and other similar terms). It was combining the best elements of both instruments. I have not gotten push back on this method and in fact helped secure some investment I may not have gotten through a SAFE.

SEC Warns Investors About Dangers of SAFEs

ethan Mayers Answered question October 26, 2021

I’d ask.  My reply would be to seem curious and helpful, by asking what they mean by can’t.  Technically (legally) there is no reason they just can’t so it’s a valid question why they say that.  Maybe their LPs are against them, maybe the operating agreement of the firm prohibits it…

A SAFE, by the way, stands for Simple Agreement for Future Equity; it’s a document (a “note) that startups often use to help raise seed capital. Essentially, a SAFE note acts as a legally binding promise to allow an investor to purchase a specified number of shares for an agreed-upon price at some point in the future.

It’s something paid for now that turns into something different later; that something now is an agreement between a company and investor, while the something later is equity. You’re basically taking the money by promising that investor a percentage of ownership in your company later. You get to hold on to the shares now so they’re not as directly involved as an owner; they get to invest now and maintain the value of their investment when they get those shares in the future.

Uncovering their cause for that might open the door to an alternative (Convertible Note?  more or less the same thing)

Not really more or less the same thing… they’re both ways to raise capital now in exchange for equity in the future, the fundamental difference is that a Convertible Note is paid to you in the form of a loan while the SAFE is just an agreement for the future equity.  This makes Convertible Notes more complicated as the terms of the lending period have to be factored in, negotiated, and agreed to as well (It “converts” to equity in the future) – at the same time, while that’s complicated, many investors will prefer to have the protections of lending in place, while in both cases everyone is just waiting for the point in the future where the investor ends up with equity instead.

“We can’t do Safes” seems a too definite and vague reply.  Which is not to say they actually can’t, but that knowing why they can’t would be helpful since “can’t” really isn’t a reason.

I’ve learned after so long in this world, that too many (most?) VCs give soft Nos when they really just don’t want to invest.

Too often it’s because they don’t understand or can’t provide any valid or helpful feedback, so they resort to excuses (“if you had more customers…” the most common of those).   I find that aggravating and actually detrimental to entrepreneurship, and in particular detrimental to first time, young, or disadvantaged founders, because it strings people along with hope or misleads them with bad advice.  /rant

Point being… asking why they can’t might uncover that they really just aren’t interested; which would be more helpful to know than you pondering how you might otherwise raise capital from them.

Paul O'Brien Answered question October 13, 2021
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