Comment by persnicker | Hacker News Reader

Comment by persnicker | Hacker News Reader

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"Investors' worst nightmare" seems very off. Most SAFE notes give you dividends that are on par with how corporations issue dividends. Assuming there is cash flow, you should be getting dividends.

If the dividends are so low that you will never be reasonably paid back you can often negotiate to get out in some form. Very low cash flow only with no growth seems to be the only exception...which I'd guess would only exist if something such as high revenue or some unique IP existed to make the equity very valuable and therefore the company worth running.

With a convertible note as opposed to a SAFE, you either need to extend the maturity date or get paid back your note with interest.

Both SAFEs and convertible notes seems to have a path to exit in some reasonable form.

The only time I've seen "nightmare" situations occur is when the investor themselves makes it a nightmare i.e. https://www.cnbc.com/2025/01/07/tech-investor-denis-grosz-or...

...and that's a nightmare for the company, not the investor.

If there’s enough money to pay the founders salaries, but not so much for dividends, this doesn’t help.

There are two direct ways to return money to the founders - salaries and dividends. In the U.S. there is a tax advantage to dividends, over an amount anyway. This is not true of all countries.

Neat edge case! Perhaps SAFE notes or other dividend-paying instruments should account for this by capping executive salaries or trigger dividend payouts at a certain salary dollar amount. Though, admittedly, I've never heard of a founder or executive using their salary instead of taking dividends as an end run around paying everyone their fair share of dividends. It seems possible though.

There already is a cap. Founders have a fiduciary duty to their shareholders and can't pay themselves unreasonably. Lots of gray area, but there is a limit.

> Very low cash flow only with no growth

This is very typical in startups, where making revenue at all may be rare in many categories (social media for example), and a startup is either wildly successful or nobody uses it.

Hopefully, the startup is about to be wildly successful, but it's easy to end up in a situation where some funding was raised, the product has reached a dead end, but the founders continue to "try to make it work". Whether they are doing this to "draw a salary", are earnestly trying to make it work, or a little bit of both, there isn't much legal recourse for investors if they aren't doing anything worse than not being very successful.

> Very low cash flow only with no growth seems to be the only exception..

That's not an exception. That's the norm. Most start-ups fail.

They literally burn down the investors' money and that's it.

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