About two years ago I wrote “Safe and Sound? A Primer on the New YC Docs” for LaunchDFW regarding the Y-Combinator SAFE docs and their application to the Dallas-Fort Worth (DFW) startup community. My conclusion was that SAFE docs were likely too startup favorable to take off in the DFW startup Community as many investors were still wary of convertible notes. I am pleased to say that I am seeing a change, and some deals are getting done with SAFEs.
Recently, local prominent investors in DFW have invested using SAFE docs. This is something that never would have happened two years ago when I wrote the “Safe and Sound” article. Two years ago we were still somewhat having to convince local investors of the convertible note investment structure.
What caused this change? My guess is that local investors are beginning to realize that their seed investment wasn’t going to be the “last investment” in the startup’s life, and they were able to wrap their brains around the “how much equity do I get?” question. And of course, the funding environment in DFW has been much better for local startups.
However (and unfortunately), I don’t see this trend of increased use of SAFEs continuing. The reason being is that an inevitable economic downturn could be around the corner (or already here), which will mean that startups may not have the leverage negotiate using SAFEs as their investment structure. It’s been a pretty good ride the last 3-4 years for startups raising capital on their terms.
But, maybe the economic downturn isn’t as imminent (or impactful) as people are predicting. If that is the case, I think SAFE docs will become more commonplace here in DFW. They’ll never reach the adoption rate of convertible notes, but I wouldn’t outright dismiss them from the start.