[dcaisen]

Not sure if it's the optimal approach, but this is pretty much exactly what we did. At the onset of the company, I made a capital contribution (beyond the small purchase amount of our founder stock) using a standard YC SAFE with no valuation cap/discount (with an MFN clause). When we later raised a friends and family round, we did so via a SAFE as well, this time with a valuation cap, and I swapped my initial SAFE for the F&F SAFE, and we basically just considered it part of that round.

The second part of your plan is unclear to me. When you issue employees options, those will generally be options to buy common stock, not preferred. And if and when you raise a priced VC round for preferred shares, all of your SAFEs will then convert to preferred shares.

[systemaccount]

Regarding the part that's unclear - my understanding is that investors prefer founders own common over preferred stock which is why I proposed our founder SAFEs convert to common while all others to preferred. From your experience it sounds like all SAFEs, including the founders, will convert to preferred.

Thanks for clarifying that ESOP is common stock. In the SAFE guide its unclear where this belongs. I admit I still owe the concept of options more time to digest.

[dcaisen]

When you start the company, you and your co-founders purchase all of the common stock at a de minimis price (and file 83(b) elections!).

The additional preferred shares you would get when this SAFE is converted will almost certainly be very very small compared to your original founder stake - to the point where it's kind of pointless to get it in the first place. Your investors wouldn't want your initial founder equity to be preferred, but they should have no problem with you putting in your own additional money alongside theirs on the same terms. Many investors like to see their founders have skin in the game.

From the founder's perspective, you're better off making a loan to the company, since you're already so rich with equity. That said, in my experience, investors don't like putting money in just to have the founders take money off the table, especially early on. With my first company, we started off with founder loans, and when we raised our first institutional round, our investors insisted we convert those loans into equity at their same price as opposed to paying ourselves back.

That's why my approach with this second company was to go straight with the SAFE off the bat for my capital infusion.

It is possible that our first company was an anomaly - and that founders putting in additional capital via loans is the standard practice and that most investors are totally cool with you getting paid back on those loans.