# Field Notes No. 3 By Jeff Stowell · 2026-03-19 · Insights > Welcome to Field Notes No. 3, where I'm going to take a small torch to simple agreements for future equity (SAFEs). I also have a GREAT podcast for you this week that will make you smarter. And some of my thoughts on the role of a CEO. # Field Notes No. 3 - Don't Do SAFEs Welcome to Field Notes No. 3, where I'm going to take a torch to simple agreements for future equity (SAFEs) and probably get nasty grams about it. The Something for Founders and Something for Investors both tackle these demon documents today. I'm way too fired up about this. I also have a GREAT podcast for you this week that will make you smarter. And some of my thoughts on the role of a CEO. ## Something for Founders Stop doing SAFEs. If you don't know, SAFE is an acronym for Simple Agreement for Future Equity and it is an investment structure introduced around 2013 (damn Y-Combinator!) to help speed up the funding of startups. These are basically one-page agreements that say something akin to "If you give me money now I promise I'll give you some stock later." Many founders have heard from me what you're about to read. They too have rolled their eyes at me. Now is your chance to do the same. The single biggest drawback for founders related to SAFEs is that they result in the lazy accumulation of mini-funding rounds that cause cap-table chaos later. The most touted feature - they're quick and easy - is precisely the thing that makes them so damaging. The math of SAFEs often compounds badly; the multiplier effect in the post-money calculation (more SAFEs, and the further the cap is from the new priced equity), the greater the variance between actual and stated pre- and post-money valuations. [Let TechCrunch tell you](< https://techcrunch.com/2017/07/08/why-safe-notes-are-not-safe-for-entrepreneurs/>)! Did you mean to sell 60% of your company before you raised a priced round? You probably did not. The time a founder reaches a priced round is usually the first time they (and employees or co-founders) see the carnage, the real dilution of prior fundraising. It's always bad. In recent years, there has been rumor of some resistance from institutional firms to even bother funding companies with a big stack of capital raised on SAFEs. The brain damage is often more than anyone wants to deal with. I've not actually seen that in practice, but what I HAVE seen is VCs make founders "eat" all that dilution prior to a priced round. I won't bother to go into the math of that here, but trust me when I say it's bad for you and your team. Here's the bottom line. Friction exists in some places for a reason. Raising VC money has some friction in it because, for founders, it's incredibly expensive money and for investors, it's incredibly risky money. That there are some barriers to getting a deal done is a good thing. Further, the law firm [Cooley](https://www.cooleygo.com/documents/) and the [NVCA](https://nvca.org/model-legal-documents/) literally give away the documents to do a priced round for free. Avail yourselves of these resources. Sprinkle magic AI dust on it have a lawyer give it a once over. Tah-DAHHHH... a price round materializes. All that said, I try to be open-minded... convince me otherwise in the comments! ## Something for Investors Investors should never do SAFEs. Full stop. Do we do them? Yes. The market sometimes dictates that we do. But we shouldn't and here are a few reasons why. You know what... here's just one reason... Taxes. That's it. Don't do SAFEs because of taxes. Startup investing is extraordinarily risky. Both the mean and median outcome for any one investment is a total loss of your money. Luckily, federal and state governments have seen fit to encourage that kind of risk taking by offering tax incentives in the form of long term capital gains treatment for such investments (pretty standard) and Section 1202 (QSBS) gain exclusions (quite extraordinary). If you don't know what the latter is, QSBS is a giveaway to startup investors. Section 1202 provides for the full or partial exclusion of capital gain on the sale of qualified small business stock held for more than five years. This exclusion is available up to the greater of $15 million or ten times the investor's basis in the stock sold. This is actually even BETTER now, as the current law allows for partial credit after holding periods of 3 years (50%) and 4 years (75%). Without getting too in the weeds, [the IRS considers SAFEs pre-paid variable contracts](https://rsmus.com/insights/services/business-tax/tax-treatment-of-safe-instruments-is-not-a-lock.html), meaning that no time tolls until SAFEs are converted. Most SAFEs have language in them purporting to circumvent this determination, but the IRS has said on a few occasions that they don't care about that and they don't agree. Now... are there other reasons not to do SAFEs? Sure. Read above about how your money impacts the trajectory of a startup. Do you need other reasons? No you do not. Investing in a SAFE is taking on the risk that the value of any return you may get could be diminished by as much as 50%. Tell me your SAFE nightmare stories. I have two of them! ## **Something I'm Reading** No book, article, pamphlet, or missive today... Today I'm recommending a \[GASP\] podcast. If you've never, I can NOT recommend [In Our Time](< https://podcasts.apple.com/us/podcast/in-our-time/id73330895>) enough. In Our Time is a BBC Radio 4 program that explores deeply a vast range of historical topics and phenomena. It's been going since 1998 and, up until very recently, was hosted by a marvelous character called Melvyn Bragg. Mr. Bragg recently won a British Press Guild special honor for his trouble. You could listen to In Our Time forever and not listen to it enough. There are well over 1,000 hours of shows. You will get smarter. It's just the best. It's difficult to choose a favorite episode, but I really enjoyed this [episode on Angkor Wat](< https://podcasts.apple.com/us/podcast/in-our-time/id73330895?i=1000570684217>) from 2022. There are so many. Once you've taken a journey through the catalog, share your favorites in the comments! ## **Something I'm Thinking About** What is a CEO anyway? Over the last number of weeks I've found myself in multiple conversations with others about the role of a CEO. The context for these conversations has almost always been related to startup fundraising, usually after a founder has told me they hate fundraising and want to "get back to work on the business." There are lots of ways to think about this question and, ultimately, I don't think there's necessarily a wrong answer... though many people do the job poorly. Some CEOs are "Visionary." Some are autocratic. Some are innovators or charismatics. All of these versions have been shown to be successful. But I think the job of a startup CEO in particular is actually something best narrowly defined: > **It is the job of a startup CEO to make sure everyone around you has everything you can possibly give them to be successful.** That's it. Of course that's also impossibly complicated. Maybe it's guidance. Maybe it's vision. Maybe it's coaching. Maybe it's sales. Maybe it's a financial report. Maybe it's code. Maybe it's a day off. Maybe it's a roadmap. Often it's money. Most days it's all of those things and a few more. So when a CEO who's talking to me tells me they want to get this fundraise done so they can go back to "working on the business" it's a bit of a tell about what type of CEO they are. It certainly conveys the idea that they don't think convincing anyone to fund their business is an important part of their job. What happens when you reorient yourself to this goal? To be the person whose job it is to make sure everyone around you - employees, customers, vendors, investors, the company mascot - can be successful. What happens to you? What happens to your business? What do YOU think the job of a CEO is? Next time... some ideas on how to think about AI without losing your mind. _Thanks for reading! /JLS_ --- Canonical URL: https://hayseedcapital.com/blog/field-notes-3 Site: The Hayseed (https://hayseedcapital.com) — writing, coaching, teaching, and early-stage investing by Jeff Stowell. Operated by Hayseed Capital, LLC, Park City, Utah.