[abalone]

For us mere mortals following along... I don't necessarily understand what you guys just debated about the impact of options pools but I did grok this from the spreadsheets: In the new model,

Founder stake goes 48.8% -> 49.6%, a modest 1.63% increase.

YC stake goes 3.68% -> 4.55%, a whopping 24% increase.

Other SAFE investors stake declines 12.5% -> 10.8%, a 13% decrease.

So while the immediate impact on founders appears negligible (assuming all variables stay the same), it would seem that this new model represents a fairly large transfer of ownership from other SAFE investors to YC.

Wouldn't this be a cause of concern for founders? If SAFE investors have a particular percentage ownership in mind, wouldn't this push founders to raise more from them (or give a discount, etc.) and thus increase dilution?

[sethbannon]

You've nailed it. Becaise of YC's increased ownership, founders will either have to raise less from SAFE investors or take more dilution, because this change won't make those SAFE investors be willing to pay higher valuations. That's the downside.

[jasonkwon]

The impact on safe investors will be less than in those 2 models because those models assume no pool, ie no hires between Safes and Series A. That’s why I said it was artificial, and that safe investors will do better than depicted. In reality there will be some amount of pool in most cases, so the safe investors won’t be bearing the full impact of the dilution from the 10% pool, ie they will own more than in the screenshot posted.

You’re right that many safe investors have a particular % in mind when the invest. The problem with the old framework is that they had no certainty on that. They could invest $1m at $9m premoney cap and think they got 10% but if the company raised more money on a bunch of other Safes or caps, they ended up with a lot less. The dilution confusion impacted both founders and investors alike. In the model you saw, the safe investors got exactly what they bargained for, 16.7% (2m invested at 12m post = 2/12 = 16.7%), and then ended up with ~11% because they were diluted by the Series A round. That’s what happens - each round dilutes the next. It’s also what would happen if those investors just did a priced round instead of using a safe.

The safe investors also now have the option to ask for a side letter that gives them the right to invest Pro Rata at the Series A. They didn’t have this in the prior framework. And if they did do Pro Rata here, they would probably end up with more ownership than they would in the old framework. This is actually more consistent with how most investors invest. Spread bets early and then double down on the ones that are working, based on an ownership level that they know they have today.