5 ms·
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 t
by 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 agoSuch "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 agoirreparably is overused on the contrary, almost nobody remembers anything where they weren't a main character
- thesausageking 4y agoI'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 agoSAFEs 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.