Rayn won the lottery and started angel investing.
Rayn invested $100k in Ash and Bobbie’s startup via a SAFE note with a 20% discount. The company becomes very profitable and continues to grow organically. 10 years later, the company lists on the ASX at a $2.5 billion market cap. Rayn’s SAFE finally converts and he pockets a handsome $20k profit. Ash and Bobbie both become rich-lister billionaires 💵.
Someone told Rayn that he could have made slightly more money if he had added a valuation cap to the SAFE note, so that’s exactly what he did next. He negotiated a $5 million valuation cap when he invested $100k in Casey’s startup. As we all know, Rayn is great at picking startups, this one grew organically to $1 billion revenue within 5 years. Casey now takes a big salary and a big dividend every year, he also uses his equity in the company as collateral to borrow money to buy properties in Surry Hills. Casey is now a billionaire. Rayn has a SAFE note in his drawer that may or may not convert to shares in the future 🗃.
Third time lucky, Rayn invested $100k in Dorian and Eli’s startup. He won’t budge unless he gets the trifecta terms, 20% discount, $5 million valuation cap, and 18 months maturity. The SAFE was successfully converted to shares 18 months later, but without the ESIC status because the company was making too much money by then. Rayn eventually cashed out $100.1 million from this deal and paid $15m in tax. The accountant told Rayn this could have been a tax-free exit if he didn’t use a SAFE. He could have bought 10 terraces in Surry Hills with his tax savings 🏠.
Moral of the story: invest in priced equity round with a reasonable valuation. (fictional stories, real maths).