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by jsprogrammer 4142 days ago
>There is no debt involved

Can you provide an executed contract to confirm?

YC appears to have moved away from convertible notes (ie. debt) [1], but if you read closely it appears that PG said the reason was to avoid debt term limits and interest rate limits....so it's an even more extreme version of debt, just not 'debt' according to CA regulations.

[1] http://blog.ycombinator.com/announcing-the-safe-a-replacemen...
3 comments
mrkurt 4142 days ago
YC itself didn't do convertible notes — other investors did. YC's investment as far back as 2011 was an equity mechanism (which I think was similar to the new Safe).

Other seed stage investors used convertible notes. These technically "debt", but only as a mechanism to keep from having to go through valuation exercises on <3 person companies that had plenty of other things to worry about.

Debt term limits and interest rate limits were bad for companies. It was not possible to have debt with, say, a 50 year term and a 0.1% interest rate. Instead, the debts had 5 year terms and non-negligible interest rates.

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rdl 4142 days ago
The term and interest rate limits were on the LOW side. i.e. being forced to renegotiate after 2 years if you haven't raised money yet (which happened to a lot of people, and the investors never had a problem with it), and charging a 0% rate (which is below the applicable federal rate and thus potentially viewed as a gift) is not the issue. It's not that YC/notes were trying to charge usurious rates or whatever.
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tim333 4142 days ago
If you read that link you posted you'll see "what the investor buys is not debt, but something more like a warrant. So there is no need to fix a term or decide on an interest rate"

Warrants just give the investor the right to purchase equity at a given price some time. They are not debt.

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jsprogrammer 4142 days ago
I did read the link, which is why I posted it. If you read it, you'll see that PG is essentially just renaming debt to get around CA regulations.

No matter what it's called: loan, debt, warrant, convertible note, SAFE, it's an instrument that attaches to future earnings.

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