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Intuition - Part 4/4: Do Pre-SAFE and NOTE behave the same?

Posted by  Rajesh Gopi   on April 11 2022



This is part 4 of a 4 part series.


Read this and this articles to understand the math behind a Post-SAFE and Convertible NOTE conversions.


Geek Alert: This series of articles are numeric in nature.


What is a Pre-SAFE?

Pre-SAFE is the first version of the SAFE (Simple Agreement for Future Equity) that YC introduced in 2013. 


From a high level, Pre-SAFE replaced lot of the complexities of a Convertible NOTE. The document is truly simple and a complete legal document as is. Raising on a SAFE eliminates the need for any legal spend - just sign the SAFE with investors and raise your capital.


Since the Post-SAFE was introduced in 2018, the Pre-SAFE have all been scrubbed out and not readily available. 


Although the Pre-SAFE is most founder friendly, it introduced a challenge for the investors who couldn't determine their ownership percentage at signing in advance.

This is because the fully diluted shares count at the future priced round is needed determine a Pre-SAFE ownership. Startups that raised on different terms and issued more options and warrants made it challenging to arrive at the fully diluted shares.



Is a Convertible NOTE math the same as a Pre-SAFE?



The caveat however is that NOTEs have interests, conversion triggers, and liquidation multipliers that may not match with the Pre-SAFE. This can make these instruments deviate in an actual cap table.



How can TWO12 help?

Cap tables are complex. It tracks your shareholders, the different securities, and the price of these securities. Mistakes made to cap tables early in your startup's lifecycle can set your company for failure. At a minimum, any economic incentive can get skewed very quickly away from founders and employees working on the startups.


Find us at https://two12.co. We can support your startup's journey and offload the complexities of managing your cap table.


Topics: cap table, Convertible Note, Pre-SAFE