This Week in Startups Navigating SAFEs, Pay-to-Play Rounds & Risks with Becki DeGraw | Wilson Sonsini Startup Legal Basics
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Jul 20, 2023 Becki DeGraw, a partner at Wilson Sonsini, specializes in navigating startup legal matters. In this conversation, she breaks down the nuances of SAFE agreements versus convertible notes, shedding light on their roles in funding strategies. They also tackle the repercussions of down rounds and 'pay-to-play' provisions, revealing how they affect founders and investors. Additionally, Becki discusses the critical conflicts that arise in financing and the importance of adhering to established legal frameworks, ensuring smoother operations in the ever-changing startup landscape.
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Stick to Legal Standards
- Founders should understand existing legal standards.
- Get a great lawyer and stick to standard terms, avoiding excessive creativity in legal structures.
SAFE Agreements vs. Convertible Notes
- SAFE agreements, initially promoted by YC, gained traction for being simple and cost-effective, especially for smaller rounds.
- However, SAFEs offer less protection for investors compared to convertible notes.
Convertible Note Advantages
- In tighter markets, convertible notes offer advantages like interest, maturity dates, and debt priority.
- Consider these factors when choosing between SAFEs and convertible notes, especially in bridge rounds.