[mpenn]

Overall, simplifying how to understand one's cap table is great. It gets in the way of many founders understanding their business in really pernicious ways.

I do believe this will change the dynamic for YC founders dramatically 1 - 3 years out if not ready for a Series A (equity round) but need more capital (seed extension). I know many people who raised $500K - $3mm more on SAFEs. Because they were pre-money, the dilution for stacking SAFEs worked. Now, that will be much harder. The next round of financing will need to be an equity round to convert SAFEs to equity. I don't know if this is good or bad, but it will push people very heavily towards an equity round if they need any more funding.

[mwseibel]

It would still be very easy to raise a bridge round on SAFEs at a higher cap (or the same cap). Not sure why there would be a push to equity round. Even better, you'll know your dilution after the bridge round which will better allow you to plan for the A.

[mpenn]

My understanding is that additional post-money SAFEs dilute solely common, whereas additional pre-money SAFEs dilute common and other pre-money SAFEs. So if you want to do a new round, by doing an equity round, you can dilute the post-money SAFEs with common. But if you do a 2nd post-money SAFE round, solely common gets diluted.

Since keeping cap flat is logistically / emotionally easiest for both sides to swallow, the founder dilution is worse under a "flat" scenario. In the pre-money world, if you did pre-money $10mm cap and raised $2mm, then later another $2mm at same cap, common would own ~71% (10 / 14) on conversion (assuming A is high enough). In post-money world, if you do $12mm cap and raise $2mm (so equivalent to old world in 1st round), then later raise another $2mm with same cap, common would own 67% (8 / 12). That's just 4 - 5%, but a real difference.

So I believe the incentive is higher to do an equity round to convert the post-money SAFEs so they can be a part of the dilution of the new round. Unless I am mistunderstanding how they'd convert or something else here. The math is complicated (which I guess is the whole point of why moving to post-money will improve founders' understanding).

[jasonkwon]

In addition to Michael's point, the other thing that we're seeing is that sometimes people will voluntarily push a priced seed round in order to convert existing premoney cap safes -- because they have no idea what the cap table really looks like.

[mpenn]

Interesting. Anecdotally, I have seen the opposite, where a company will raise multiple layers of SAFEs since pre-money SAFEs get diluted as you add more SAFEs, and you don't need to negotiate board seats or any control terms with a SAFE round. But obviously you have seen the real data on what co's are doing, not just a few anecdotes!