In every boom cycle in which founders develop a sense that speed-to-closing matters more than optimizing for other (still important) factors, we see more financing rounds opting for convertible structures (like SAFEs) over priced equity. This AI cycle is no different.

As we all know, however, nothing is free. In this case, speed has a price. Post-money SAFEs are often so easy to close “fast money” on because they contain numerous investor-favorable mechanisms that are precisely the reason investors have grown so “comfortable” with them.

For example, serial rounds of post-money SAFEs dilute founders substantially more than rounds closed as priced equity at equivalent valuations. You’ll certainly save some time and legal fees, but in the longrun those “savings” can cost you 10-20x or more in cap table value via more dilution.

Relatedly – and this is the core point of this post – conventional SAFEs with valuation caps have built-in “valuation insurance” for investors. The valuation cap is not a valuation floor. We saw this fact burn a lot of founders in the last boom cycle (involving crypto).

If you raise a priced equity round at, say, a $50 million post-money valuation, the price of your shares for those investors is set. You know exactly how much you were diluted. If the market shifts and valuations drop, those investors still own that same percentage. Yes, you may do a down-round and there may be a small anti-dilution adjustment from it, but it’s usually not very material.

Contrast that with how SAFE valuation caps work. If you raised at a $50 million post-money valuation cap (same valuation as the prior example), that is only a cap on the valuation. Until that SAFE actually converts, those investors can end up paying substantially less than a $50M price. If market momentum drops substantially, you could end up with far more dilution than you were originally planning on; sometimes multiples more.

Rushing to close a large SAFE round in boom times when you could have done an equity round is thus a high-risk gamble that the market will not shift against you, down-shifting all of the conversion prices of your SAFEs along with it. Priced rounds may be slower, but they don’t have this problem.

That said, priced equity vs. a post-money valuation cap SAFE does not encompass all the options on the table. Some companies do fixed valuation SAFEs. You will not find these on YC’s website.

These customized SAFEs don’t have valuation caps, but hardened valuations. This is substantially more founder-favorable, but (for that reason) many VCs and other investors may push back. The truth is SAFE rounds deviate from the “classic” template structure quite frequently, when founders are well advised of all the options at their disposal.

Ultimately, know that in the world of (somewhat ironically named) SAFEs, high speed has a high price. Sometimes that price is worth paying. Sometimes it’s not. It's not generosity behind why VCs are happy to sign that YC “standard” post-money SAFE. It’s a financing structure that suits them (financially) quite well.

Make sure you have a real conversation with trusted counsel about the various options for structuring your financing, including varieties of SAFEs. Don't thoughtlessly assume – often with the encouragement of clever investors who stand to gain from your ignorance – that the whole startup ecosystem runs on a single one-size-fits-all template.

It doesn’t.

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