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

7 points funnywalrus | 4 comments | 20 Nov 24 19:25 UTC | HN request time: 0.916s | source

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?

1. ipaddr ◴[20 Nov 24 20:14 UTC] No.42197674[source]▶
Check the terms: it becomes debit or prorated shares
2. hehehheh ◴[21 Nov 24 01:07 UTC] No.42199968[source]▶
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.

3. nivertech ◴[21 Nov 24 12:59 UTC] No.42203908[source]▶
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/