Founders, beware of SAFE’s

I’m not objecting SAFE’s. It’s a very good instrument to raise your seed financing. However, since YC moved to post capitalization notes, things have changed dramatically. let’s say you raise $1 million at $10 million post money. that means investors gets 10% of the company; with a Post Money cap SAFE note they will always get 10%. That’s even better than a full ratchet protection. if you raise another safe at a higher valuation, let’s say 20 million and raise 2 million the dilution is 10%. if you don’t convert the first safe those investors are not getting diluted by this new round because they get 10% no matter what. so by saving a few dollars on legal fees to convert the first safe to series seed preferred you’ve actually lost a lot more in equity. so the best way to go about it is to raise the first round in safe and then convert it to series seed preferred, and then you can raise another safe , and then converted and so on and so on. But actually once you set up the series seed structure, it is better for everyone to continue and issue those shares in stead of notes.