We currently have the ability to accept a $250K SAFE note with no discount/cap, but with a MFN clause. We've been told that SAFE notes with MFN clauses are now very common across a number of angels / earlier-stage funding sources. (For those that don't know what that means, an MFN clause basically says that the $250K will convert at the same discount/cap as any subsequent SAFE that has better terms.)
Does this mean if we accept the investment, and then get into YC, we would be giving up at least 21% of our company? (Because the $250K note gets the same terms as YC's $125K for 7%.)
That seems like a huge amount to give up, since we'll probably lose another 25% equity during our seed round, meaning we'll only have ~50% of the company left after just our seed round.
Am I looking at this right or am I missing something? Doesn't that mean anyone wanting to go through YC shouldn't raise any money that come with an MFN clause (which seems to be super common these day)?
The investors unfortunately can't invest without the MFN clause (it's standard), can't wait for 2 months for us to find out YC results, and can't invest any less than $250K.
Would love to hear your thoughts on how to think about this. I might be crazy, but I'm leaning towards turning down the funding in the event that we do get into YC.
If you decide to go with funding and you don't get into YC this time around. Would that give you more opportunity to show more traction in 6 months or a year?
Does getting funding help your odds of getting into YC? or raising money during demo day?
It seems like to me there's only one scenario where turning it down plays in your favor.