Convertible notes and SAFEs pile up on a cap table without converting to equity, creating a mess called cap-table hell. If a company never raises a Series A, SAFE holders get stuck with no way to convert or exit, even if the business is thriving.
With a convertible note and a SAFE, they convert in the future and there's a bunch of stuff that can happen. And so nobody knows how much equity anybody owns, including founders, until it actually converts. So there's an enormous amount of cap table hell that ensues with convertible notes and SAFEs. And the more notes and SAFEs that pile up, the more confusing it gets. There's a thing called zombie SAFEs or zombie companies. So, the intent of a SAFE or a convertible note is the company will do a Series A financing. Well, what happens if they never get to that point? Some companies are really good companies, like Neal talked about, an apparel company maybe that reaches $10, $20, $30 million in revenue, but it's not like venture scale. And so, there can be a lot of companies that are really good companies doing good business, generating good revenue, but they never do a Series A. And so, if you're a SAFE holder, there is no mechanism in the safe to actually force something to happen.
