[mritchie712]

You get the 375k now, it is not part of the 7%. The incremental % they own wouldn't be determined until you raise again.

But you could choose to never raise again. They'd still own some incremental amount of your company, but % would be a bit unclear unless you got a formal valuation outside of raising or sold the company.

[SmellTheGlove]

If you can build something with 500k and grow at VC-expected multiples without raising again, I'm sure that'd be a pretty positive conversation to go have with YC to determine the equity attached to that additional 375k!

I think the issue is going to be that YC isn't looking to fund lifestyle businesses, so getting that initial shot is going to be tough. It just doesn't seem to me like YC is looking for companies that wouldn't have that next equity round.

I've never gone through YC though, so don't necessarily take my word for it!

[tptacek]

They would own the 7%, and have a debt claim in the amount of the SAFE on the company at liquidation.

[gustaf]

This isn't correct. SAFE isn't a debt instrument - its a right to own shares in a future round. You are probably thinking of convertible debt.

[granzymes]

(c) Dissolution Event. If there is a Dissolution Event before the termination of this Safe, the Investor will automatically be entitled (subject to the liquidation priority set forth in Section 1(d) below) to receive a portion of Proceeds equal to the Cash-Out Amount, due and payable to the Investor immediately prior to the consummation of the Dissolution Event.

[ktom]

Dissolution Event is different than debt.

If you wind the company down, you would/should try to make your investors 'as whole as possible'.

Debt implies that at some later date YC could come asking for their $375k back. A SAFE is not debt.

If your company is running and does not end up raising more money that SAFE should just sit there waiting for the day that you do (which may never come).

[tptacek]

There's no maturation date on a SAFE. This is all in the "User Guide" YC publishes for these instruments. The text of the SAFE refers to it as a "converting security". I'm sure there's an important distinction to be made here, but for the purposes of this discussion: if you never raise a round, the issuer just gets their money back (if money is to be had after senior claims).