"the preferred stock that a SAFE holder is issued will have a liquidation preference that is equal to the original SAFE investment amount, rather than based on the price of the shares issued to the investors of new money in the financing. "
This point is incredibly important and one of the key downsides of debt from the company perspective, as convertible notes create outsized liquidation preference upon conversion. And when things don't go as well as you hoped, liquidation preference matters a ton.
Note that this isn't unique to SAFE. If you're using a standard Clerky / YC note, the debt will convert into a mix of preferred and common to ensure there's no extra liquidation preference.
Correct - the notes had this feature too, except that rather than shadow preferred, it was the preferred / common "unit" concept. The net result was the same.
This point is incredibly important and one of the key downsides of debt from the company perspective, as convertible notes create outsized liquidation preference upon conversion. And when things don't go as well as you hoped, liquidation preference matters a ton.
Kudos PG et al. EXCELLENT work.
See: http://ycombinator.com/safe/SAFE_Primer.docx