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Ask HN: How does a cash acquistion with SAFEs work?

7 points - last Wednesday at 7:25 PM


I hope this doesn't come across as too stupid of a question. There is so much insight for more complex situations, but nothing I saw that clearly explained this simple situation. Want to make sure I'm not over/under thinking this.

Let's say a simple LLC business has two standard post-money SAFEs....

- Investor A contributed $40,000 at a post-money valuation cap of $400,000

- Investor B contributed $50,000 at a post-money valuation cap of $800,000

- There are no other investors

Questions: If the business is fully sold for $600,000 all cash, does Investor B still receive 6.25% of the acquisition cash even if the sale is under their valuation cap?

  • nivertech

    last Thursday at 12:59 PM

    Standard YC SAFE is for corporations (C Coprs), not for LLCs, as LLCs don't have shares to convert to, only membership units.

    While there are SAFEs for LLCs, I don't get their purpose.

    Maybe they can be useful for bootsrapping Micro-SaaS or lifestyle businesses.

    https://jmdorsey.com/safe-for-llcs/

    https://mccarthylg.com/can-an-llc-use-a-safe/

    • hehehheh

      last Thursday at 1:07 AM

      I guess:

      A gets $60000 which is 10% due to cap.

      B is below cap so gets $50k worth of shares in the pile of cash. Or $50k if you like.

      • ipaddr

        last Wednesday at 8:14 PM

        Check the terms: it becomes debit or prorated shares