4 ms·

So I'm not a lawyer, and I haven't litigated anything, and this is not legal advice, but have raised capital (ventures debt, safe's, and Series-A) and seen how

So I'm not a lawyer, and I haven't litigated anything, and this is not legal advice, but have raised capital (ventures debt, safe's, and Series-A) and seen how PE companies work/do acquisitions. In thinking about these documents, it's worth remembering that for these companies there are basically only two outcomes: 1. Do a priced round (Series-A) that converts the investment. 2. Or, go bankrupt/run out of money and stop operating. For #1, conversion i.e. Series-A, tend to be done by a small number of legal firms that everyone knows, and VC's have their own legal council too. While there can be plenty of negotiating on terms; I've never heard about conversion being contentious. Compared to many other things, these are 'happy events.' Both sides need to 'opt-in' to the agreement. And the law-firms and VCs have strong incentives to play close to the book. For #2, bankruptcy's or wind down, there's usually nothing to fight over. The firm has no money, and no-one has put value to the assets. This is extremely different from many corporate transactions where a) the firm may have a lot of tangible/valuable assets, b) the seller is wealthy/sophisticated/has ulterior motives and c) the buyer is wealthy/sophisticated/has ulterior motives. So there's tons of potential motivation, and reason, to fight over things. So I think both the finite ways SAFE's are used, and the finite outcomes/incentives to the counterparties significantly reduce the 'reasons' for litigation - compared to the vast majority of corporate agreements/contracts/legal proceedings.

thesausageking 4y ago
There is a third outcome which is a problem for SAFEs: the company has moderate-but-not-amazing growth and never raises an equity round. The founders are able to just keep growing it, paying themselves good salaries and eventually dividending out profits to themselves. Because SAFEs have no maturity date and have no rights to dividends, the investors get nothing and are basically stuck.
- beambot 4y ago
  Such "zombie" companies are effectively a write-off for venture investors given the power law dynamic of their funds. Usually the SAFEs will be negotiated away (modest payout or written down to zero) as the 10-12 year lifetime of the fund draws to a close. Most parties are good about coming to an amicable conclusion since a bitter dispute would irreparably harm both parties' reputation in future endeavors.
  - Terretta 4y ago
    irreparably is overused on the contrary, almost nobody remembers anything where they weren't a main character
  - thesausageking 4y ago
    I'm not talking about zombies. These are profitable, growing companies. Just not venture scale. Often you can work something out with founders, but the fact that the SAFE doesn't have anything to say about these situations is a bug.
- orionsbelt 4y ago
  SAFEs share in dividends: "However, if the Company pays a dividend on outstanding shares of Common Stock (that is not payable in shares of Common Stock) while this Safe is outstanding, the Company will pay the Dividend Amount to the Investor at the same time." Of course, most startups will never declare dividends.

thesausageking 4y ago

There is a third outcome which is a problem for SAFEs: the company has moderate-but-not-amazing growth and never raises an equity round. The founders are able to just keep growing it, paying themselves good salaries and eventually dividending out profits to themselves. Because SAFEs have no maturity date and have no rights to dividends, the investors get nothing and are basically stuck.

beambot 4y ago
Such "zombie" companies are effectively a write-off for venture investors given the power law dynamic of their funds. Usually the SAFEs will be negotiated away (modest payout or written down to zero) as the 10-12 year lifetime of the fund draws to a close. Most parties are good about coming to an amicable conclusion since a bitter dispute would irreparably harm both parties' reputation in future endeavors.
- Terretta 4y ago
  irreparably is overused on the contrary, almost nobody remembers anything where they weren't a main character
- thesausageking 4y ago
  I'm not talking about zombies. These are profitable, growing companies. Just not venture scale. Often you can work something out with founders, but the fact that the SAFE doesn't have anything to say about these situations is a bug.
orionsbelt 4y ago
SAFEs share in dividends: "However, if the Company pays a dividend on outstanding shares of Common Stock (that is not payable in shares of Common Stock) while this Safe is outstanding, the Company will pay the Dividend Amount to the Investor at the same time." Of course, most startups will never declare dividends.