Comment by echelon | Hacker News Reader

Comment by echelon | Hacker News Reader

Parent Full thread

How does the "uncapped, no-discount, MFN SAFE" work? What does that mean in terms of the percentage of equity you'd take?

I'm self-funding fakeyou.com from a previous exit. My AI/ML startup is called "Storyteller" and my team is about to launch real time voice conversion (you -> Trump, Adele, etc.), music generation (instruments + vocals), and real time motion capture (for film and animation, essentially super high quality VTubers) in a matter of weeks, plus a bunch of other stuff by EOQ3. From there it's AI musicians, story generation, etc. A takeover and democratization of Hollywood and Nashville.

I have no idea what I'm doing in terms of fundraising. We have 5M+ MAUs and I don't even have a deck. I'm in Atlanta grinding out product and I'm not plugged into this VC/fundraising world, but I know I need to grow this.

The $300k cloud credits sounds right-sized. I also started buying a metric ton of 3090s and running k8s both in the cloud and on-prem. :)

Very high level explanation of a SAFE is that it converts on the valuation of your next funding round. Uncapped means that if you raise at a $200m valuation in one year, the SAFE will convert to equity at 250k/200m or 0.125% of the company.

More details here https://capbase.com/how-do-safes-work/.

> Uncapped means that if you raise at a $200m valuation in one year, the SAFE will convert to equity at 250k/200m or 0.125% of the company.

How would it be different if it was capped? I went to your link but there are no mentioned of "capped" or "uncapped"

Cap sets a valuation cap, say $20M, and the safe converts to equity at the lesser of the cap and the valuation of the later round.

If it is capped then you replace “200m” by the minimum of “200m” and some agreed on amount, e.g., 10m. This protects the investor in case the first equity round has a surprisingly high valuation, which would dramatically dilute them. At the same time, instead of agreeing on a valuation for the initial investment, you are agreeing on a theoretical upper bound on the current valuation.

Capped means the investor is putting in a floor for the minimum stake they’ll accept in the next round. So regardless of next funding round they would get own (original investment)/(new valuation with maximum value of cap) = % of company owned. Uncapped means the denominator will be whatever new valuation is.

How it matters to the founder - if it's uncapped then as the next round goes to infinity, the equity from the SAFE round goes to zero (see the 200MM example). If It's capped, then the SAFE will convert at no lower than X%.

Uncapped is better for the founder, but the difference only will ever really matter if it takes off so fast that the next round is at a much higher valuation than expected.

So if you raised 500k, they would get 50% of the company?

If you raised at a $500k valuation, yes. Not if you just raised $500k.

Okay, so that is what “uncapped” refers to here — there is no cap on how much of an ownership stake the investor can translate to.

That contract seems like a really bad deal unless you’re certain to be raising a lot of money & need capital to cross some barrier to get there.

Apologies if this comes off as harsh, but I'd recommend doing your own research on fundraising and common terms rather than trusting potential investors to educate you.

To address your question, an "uncapped, no-discount, MFN SAFE" roughly amounts to getting the same terms that will be given to your next investors: https://www.dentonsventurebeyond.com/resource-center/safes/

> a metric ton of 3090s

Hmm… their weights vary a bit more than I would have expected; in a little searching, I’m finding figures ranging from 1372g for a Gigabyte (which would be ~729 to the ton) to 2157g for the Founders Edition (which would be ~464 to the ton).

(Aside: this is the first time I’ve reached for Google in well over a year, because DuckDuckGo categorically failed to find anything even vaguely useful or relevant for my queries, whereas Google found plenty of meaningful results.)

I really appreciate this comment.

Beyond your specific question, which appears to have been answered, highly recommend the book “Venture Deals” to learn more about equity based funding:

https://www.amazon.com/Venture-Deals-Smarter-Lawyer-Capitali...

Reply on news.ycombinator.com