In this conversation, Daniel and Dan discuss the current state of the early-stage financing ecosystem, focusing on SAFEs (Simple Agreements for Future Equity) and convertible notes. They explore the evolution of SAFEs and how they have become the dominant form of early-stage fundraising. They also discuss the differences between SAFEs and convertible notes, the challenges of setting caps and discounts, and the potential problems with stacking multiple SAFEs. The conversation highlights the need for standardization and consensus in the industry. In this conversation, Daniel and Dan discuss the biases and complexities surrounding convertible notes and the need for a more thoughtful approach. They explore the different usages of convertibles, including bridging the gap between funding rounds, and the challenges of setting caps and discounts. They propose a first principles approach to determine the discount, tying it to the required ROI for venture capital. They also discuss the determination of the cap based on the optimistic valuation of the company. Overall, they advocate for a shift towards simpler and more transparent instruments that align with the needs of both founders and investors.