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It's clear you put time and thought into this post, so it deserves an equivalent amount in response. I think you’ve understood some things correctly, but not o

It's clear you put time and thought into this post, so it deserves an equivalent amount in response. I think you’ve understood some things correctly, but not others, but that’s why we're on HN - to help clarify. (1) The modeling you’ve done for the premoney safes is correct, but it’s incorrect for the postmoney scenario. That’s because Angelcalc hasn’t been updated yet for postmoney safes that track the one we released. Angelcalc includes the Series A option pool increase in both flavors of safes, because what people were doing when flipping standard premoney cap safes to postmoney cap safes is they were just changing the pre to post, and nothing else. We deliberately took out the Series A pool increase for reasons that are all detailed in our post. That means both we and the safe holders share the Series A pool increase with the founders, which is not how it’s working on Angelcalc (but we will update it soon). Also, in your postmoney scenario, the valuation cap for the $2M safe needs to be adjusted to be a $12M postmoney cap safe. So if you update the postmoney scenario using all of your variables based on the postmoney safe we released, the results are different. I did it by hand on excel - here’s a screenshot: https://imgur.com/m4V51SH https://imgur.com/m4V51SH Happy to send you a copy of the excel file. Also, to be perfectly transparent, these examples are somewhat artificial because they assume a 0% option pool issuance in both cases, which is unlikely to be the case. Safe investors will do better than in the screenshot I sent the more options that are issued before the Series A round. They also have the option now to ask for a template side letter to participate pro rata in the Series A round itself. (2) The YC deal should be viewed together with the money founders will raise at demo day, i.e. as one continuous round, and thus the combined % of the company you end up selling. That combined % for YC and demo day safes was often too high in the old deal because founders had a hard time understanding how dilution was unfolding. Safe rounds may not have been priced correctly because of that lack of clarity. With these new changes, the days of raising on safes and not knowing how much you owned are over. The days of planning a Series A fundraise not knowing how much you’ve already been diluted are over. We strongly believe that founders will end up less diluted by the combined % of YC and demo day safes. It’s interesting that you would characterize an uptick in YC ownership as “downside” for the founders. I don’t think founders look at our ownership - they look at theirs. (3) An underlying assumption of your post is that the safes and YC deal are changing, but everything else — valuations, option pools, amounts people raise and dilution transparency (or lack thereof) — will remain the same. The point of us doing this though is that we expect it to change all of those other things. Everything is tied together. As Michael already pointed out, once you can see what’s happening, both investors and founders can take better actions on both fronts. High-res fundraising should also become easier, as Carolynn points out on http://ycombinator.com/documents http://ycombinator.com/documents.

sethbannon 8y ago
Thanks Jason for the thoughtful reply, and thanks also for your work on simplifying and improving the YC SAFE. I think these improvements will benefit the entire ecosystem (founders & investors & employees) by making it easier for everyone to understand SAFE dilution. Still not clear on how (in most cases and assuming there is not a 0% option pool pre-equity round) this will not lead to increased expected dilution for founders from the YC deal as compared to the old deal, so would love to play around with your Excel sheet. My email is my HN username at gmail.
- jasonkwon 8y ago
  Sure - just sent to you.
  - sethbannon 8y ago
    Played with your excel and while the difference is not the same as I calculated with AngelCalc, it still seems the dilution from this new YC deal will be greater than the old YC deal post-equity round in basically every circumstance. Essentially, with this new deal, after equity financing YC will own 7% minus the dilution from the equity round minus dilution from any options pool increase [1]. Previously, after equity financing, YC would own 7% minus the dilution from the equity round minus the dilution from the SAFE round. While it's true founders are getting a little bump on YC absorbing the dilution from a Series A option pool re-up, in my experience these are typically 5% to maximum 15% increases. Whereas the dilution from post-YC SAFE rounds are typically 15% to maximum 30%. So YC is assuming a potential 5-15% dilution in their ownership while avoiding a 15-30% dilution in their ownership. Translation: YC will own more post-equity financing than they would in the old deal. This puts a burden on the founders to make up for that increased dilution by raising the post-YC SAFEs at a higher valuation than they otherwise would, which will likely make those raises harder. Alternatively, they can raise their Series A at a higher valuation than they otherwise would to make up for YC's extra ownership, but that will make those raises harder than they otherwise would be. So there is a real dilution downside for founders here. 1: in reality YC will continue to own 7% after the equity round because they'll exercise their pro-rata right during the equity round but that doesn't change the underlying point being made here so will ignore it for simplicity.

sethbannon 8y ago

Thanks Jason for the thoughtful reply, and thanks also for your work on simplifying and improving the YC SAFE. I think these improvements will benefit the entire ecosystem (founders & investors & employees) by making it easier for everyone to understand SAFE dilution. Still not clear on how (in most cases and assuming there is not a 0% option pool pre-equity round) this will not lead to increased expected dilution for founders from the YC deal as compared to the old deal, so would love to play around with your Excel sheet. My email is my HN username at gmail.

jasonkwon 8y ago
Sure - just sent to you.
- sethbannon 8y ago
  Played with your excel and while the difference is not the same as I calculated with AngelCalc, it still seems the dilution from this new YC deal will be greater than the old YC deal post-equity round in basically every circumstance. Essentially, with this new deal, after equity financing YC will own 7% minus the dilution from the equity round minus dilution from any options pool increase [1]. Previously, after equity financing, YC would own 7% minus the dilution from the equity round minus the dilution from the SAFE round. While it's true founders are getting a little bump on YC absorbing the dilution from a Series A option pool re-up, in my experience these are typically 5% to maximum 15% increases. Whereas the dilution from post-YC SAFE rounds are typically 15% to maximum 30%. So YC is assuming a potential 5-15% dilution in their ownership while avoiding a 15-30% dilution in their ownership. Translation: YC will own more post-equity financing than they would in the old deal. This puts a burden on the founders to make up for that increased dilution by raising the post-YC SAFEs at a higher valuation than they otherwise would, which will likely make those raises harder. Alternatively, they can raise their Series A at a higher valuation than they otherwise would to make up for YC's extra ownership, but that will make those raises harder than they otherwise would be. So there is a real dilution downside for founders here. 1: in reality YC will continue to own 7% after the equity round because they'll exercise their pro-rata right during the equity round but that doesn't change the underlying point being made here so will ignore it for simplicity.