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It's arguable that the most innovative development in finance over the last 20 years before Bitcoin was what Y Combinator popularized with their SAFE (Simple Agreement for Future Equity) Note.

The SAFE note took the place of the convertible notes because convertible notes had a standard maturity date of two years and many companies two years in were still trying to pivot or figure out product market fit when the money was due to be paid back or to be converted into equity. This created adversarial relationships with early stage investors before any momentum was gained. The SAFE note is a simple standardized, free 5 page document with only two fields; a valuation cap and a discount rate. Of which only one of those converts at a qualified financing event. And not any time before.

As great as this is, it doesn't work for Bitcoin forward companies that denominate their business in Bitcoin, accept Bitcoin and don't plan on entering fiat capital markets ever again. Because of that, Bitcoin companies that want to raise Bitcoin need something different. Our proposal is to move back to something similar to the convertible note if you are a company that is Bitcoin only ie zero ties back into fiat systems but want to raise Bitcoin from Bitcoin only investors.

Our opinion is that the only risk reward for investing Bitcoin into a company is that the company has to make an effort to return more Bitcoin to the investors from the stream of Bitcoin payments.

If 1 Bitcoin is 1 Bitcoin and an investor invests that into a company, we believe it's reasonable to expect more than 1 Bitcoin back. We also believe that for best in class Bitcoin companies that only take Bitcoin, the World will soon realize they have to pay these companies in Bitcoin or they won't have access to the best products and services.

*Please note this idea and document are only in draft mode and meant to encourage the debate around this topic that we believe is important for the circular economy companies that may need to raise money to scale. We'd like to collaborate with NOSTR to produce something that is as innovative and helpful to both founder and investor as the SAFE note is. Critical feedback here is the most helpful and the most welcomed.

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Eric FJ 🪬⚡️ 5mo ago

No bueno. Just raise in fiat and offer bitcoin as a payment rail with a fiat reference if necessary, then run a btc treasury strategy. As written, this puts startups behind the 8-ball from the beginning and, at scale, creates an ecosystem of net bitcoin sellers. This instrument still pegs it all to fiat with worse terms for the startup.

This only works once there’s no fiat references at all. IE when bitcoin price is a relatively stable unit of account. We’ll get there one day.

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Discussion

Soak Quest 5mo ago

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PDJ 5mo ago

Killer feedback. Need to update the fiat peg to something else and make sure terms are fair.

Come at this from a desperate Bitcoin holder that wants to invest in a Bitcoin standardized company but would have to convert to fiat and recognize a gain. They have no fiat.

This vehicle is specifically for a mutual transaction between parties that don’t want a future where they don’t touch fiat rails ever again and specially for investors in Bitcoin that don’t want to recognize a gain by liquidating to go to fiat. If a note vehicle denominated in only in Bitcoin doesn’t exist then that Bitcoin investor has to forgo Bitcoin’s CAGR, take a cap gains hit converting to fiat and still pay taxes on a liquidity event in fiat if there is one.

That’s a sad reality for Bitcoiners trying to invest Bitcoin in Bitcoin companies. They can’t.

So without a vehicle like this (yes there’s some potential negatives like when a company is a forced seller) the most passionate Bitcoiners will not be able to invest in Bitcoin standardized companies.

Either way this feedback is actually spot on so we have to update the doc.

Eric FJ 🪬⚡️ 5mo ago

Yeah, there’s no way around the cap gains hit if you put BTC directly into a fiat-denominated SAFE.. unfortunately it’s treated as a sale. That’s why removing cap gains on BTC is a way bigger priority than all this other noise. The cleanest workaround right now is taking a BTC-backed loan and investing the fiat into the SAFE. In your current structure, you’re effectively putting that loan risk onto the founders instead of keeping it with the investor.

PDJ 5mo ago

👌