TLDR:
– Peter Walker of Carta shared data on the use of different mechanisms in SAFEs issued for U.S. startups in 2024
– Y Combinator removed the version of SAFE that included both a cap and a discount in August 2021
The article discusses the case for uncapped SAFEs, highlighting the origins of the uncapped SAFE and the purpose of caps and discounts. Y Combinator removed the version of SAFE that included both a cap and a discount in 2021, which led to the prevalence of uncapped SAFEs. The article explores how caps and discounts are intended to offer early investors preferential entry when the investment converts to equity at a future priced round. It further delves into the habit of combining caps and discounts in SAFEs and suggests that discounts should compound over time to offer greater flexibility for startups at the extreme end of the risk/reward spectrum. The article concludes that updating the SAFE discount could bring new life into this fundraising tool, especially for hard tech founders in 2024.
