
Ask HN: Help me with the dilution math? - HD134606c
Say you&#x27;re doing a seed round and raise ten safe&#x27;s, each at 100k with a 1M cap.<p>Later on, you want to do a priced round at a 2M valuation. Since 2M &gt; 1M, all of the ten seed round investors will receive 10%, correct? So you will lose exactly 100% of your company.<p>It seems safes can be dangerous.
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warrenm
TechCrunch had an article about this a month ago:
[https://techcrunch.com/2017/07/08/why-safe-notes-are-not-
saf...](https://techcrunch.com/2017/07/08/why-safe-notes-are-not-safe-for-
entrepreneurs) (interestingly - an investment note created by Y Combinator in
2013
([https://www.ycombinator.com/documents)](https://www.ycombinator.com/documents\))).

>"We have observed the following in our own recent direct experience investing
in SAFE and convertible notes: that many founders have a tendency to associate
the valuation cap on a note with the future floor for an equity round; that
they further assume that any note discount implies the minimum premium for the
next equity round; and that many founders don’t do the basic dilution math
associated with what happens to their personal ownership stakes when these
notes actually convert into equity. By kicking the valuation can down the
road, often multiple times, a hangover effect develops: Entrepreneurs who
don’t do the capitalization table math end up owning less of their company’s
equity than they thought they did. And when an equity round is inevitably
priced, entrepreneurs don’t like the founder dilution numbers at all. But they
can’t blame the VC, they can’t blame the angels, so that means they can only
blame… oops!"

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quickthrower2
I'd love it if someone can eli5 this outlined scenario. It does sound
fascinating. I've tried googling about SAFEs but still a bit confused.

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Mz
[https://www.angelkings.com/how-to-make-a-cap-
table](https://www.angelkings.com/how-to-make-a-cap-table)

