What a zombie company is, why investors run from it, and the one habit that keeps your cap table clean.
A single SAFE barely changes your cap table on the day you sign it. That’s exactly why it’s easy to sign too many.
We asked Stephen Pessenbacher, a corporate and commercial attorney at Dommisse Attorneys who advises founders on raises and cap tables, what goes wrong when SAFEs pile up…
The move: model the conversion before you sign the next one
Unconverted SAFEs and convertible notes are one of the biggest causes of founder dilution and messy cap tables. Stephen has seen a company carry so many that it could no longer raise, while still owing conversions to its SAFE holders. He calls it a zombie company.
“A very, very difficult and complicated position.”
How to stop too many SAFEs stalling your next round
1. Know what a zombie company looks like
In Stephen’s example, the company had multiple SAFEs it was obliged to convert, with no clarity on when that would happen. New investors wouldn’t come in, so there was no priced round to trigger the conversion. The business kept running, but it was stuck: unable to raise, and still carrying promises it couldn’t settle.
2. Understand why new investors walk away
When investors see a pile of SAFEs or notes still waiting to convert, Stephen says they often scratch their heads and wonder whether the company is worth pursuing. The problem is that they can’t predict their own dilution. If they can’t work out what they’d own after everything converts, the simplest answer is not to invest.
3. Know that the dilution lands on you
Most SAFEs today follow the post-money version Y Combinator introduced in 2018. Under it, each investor’s share is fixed when they sign: a R5 million SAFE on a R50 million cap equals 10% of the company. Raise three of those and 30% is gone before your first priced round, and each new SAFE comes out of the founders’ share, not the earlier investors’. None of it shows on your cap table until the priced round forces everything to convert at once.
4. Don’t stack SAFEs if you have no valuation in sight
Stephen’s first rule is simple: if you don’t have a valuation, don’t take on too many SAFEs or notes. Each one assumes a priced round is coming to convert it. The longer that round stays out of reach, the more promises pile up against a single future event.
5. Run a conversion simulation before every new SAFE
If you do issue them, model a realistic picture of when you expect them to convert, and what your cap table looks like afterwards. Do it before you sign any new SAFE and before you take on any further investment. The aim is a cap table that is clean, predictable and still favourable to you and your next investors.
The big payoff
A founder who models every SAFE before signing walks into the next round knowing exactly what they still own, and so does the investor. That certainty is often what decides whether the round happens at all.
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Want the full playbook?
This is one piece of How Much Equity Should You Give Away and When?, Stephen’s full masterclass inside the Founder Collab, which answers the question every founder asks and few can pin down:
The stage-by-stage dilution benchmarks: how much to give away and keep at pre-seed, seed and Series A
The illustrative cap-table model showing a founder’s stake from inception to Series A
Why investors expect your share option pool set up before they come in, at the founders’ expense
How to vest co-founder equity so the company is protected if someone leaves
The investor protections hiding in a term sheet, from MFN clauses to preference shares
You’ll also get access to 40+ other masterclasses from SA founders and operators on sales, fundraising, UX, paid media and more inside The Founder Collab.
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