Oh I don't disagree with you, and I think your points are all very valid - a firm like DE Shaw is much less bad than the market participants with active conflicts of interest. Perhaps my rant is a bit misplaced on this thread.
Some basic arguments against are:
1. They are providing a service that adds no (or at least dubious) value to society. And again, I do think it's possible to have highly liquid, highly efficient markets where the amount extracted by prop trading firms is much smaller. But you're right that's an arbitrary statement, and who am I to say it's not already down to a reasonable level.
2. They do extract a lot of value. Maybe they're just siphoning it from banks and other hedge funds, in which case kudos (not to pick on hedge funds - they're just not a sympathetic victim). But probably at least some of it is extracted from mutual/index funds, pension funds, etc. Not the worst thing in the world and good on them for figuring out ways to make money, but it doesn't feel great.
3. Opportunity cost to society of the brilliant folks who wind up working there. Meh.
Way less bad than conflicted parties hurting their clients for their own gain. But I don't think they should be glorified either.
Is David Shaw brilliant? Absolutely. Has the quant/technology revolution been a positive development for financial markets? No doubt.
But secondary trading is still a zero-sum game. Firms like D.E. Shaw are profit maximizing and extract a huge amount of value from society. Probably less than the old boys club they replaced, but probably much more than necessary. There is a great deal of competition among quant trading firms overall, and their rise has coincided with electronification of markets, tighter spreads, lower commissions - all good things. But if the forces of capitalism are truly working, you have to wonder why so many firms like these continue to print money year after year (although there have been some new developments-- for example, stock exchanges have gotten much more effective at monetizing their access and data feeds, which has really put the squeeze HFT market makers; still, zero-sum game though).
There's no good reason we can't have it all: efficiently-priced modern-technology financial markets without these huge rents being pulled out. And I shouldn't pick on quant firms specifically - every layer of the system extracts its share, and I'd argue brokers and exchanges are much worse since they're fiduciaries and semi-regulatory entities, respectively, and riddled with conflicts of interest.
Disclaimer: former co-founder/head quant at IEX (Flash Boys), current CEO of Proof Trading (YC S19)
When you start the company, you and your co-founders purchase all of the common stock at a de minimis price (and file 83(b) elections!).
The additional preferred shares you would get when this SAFE is converted will almost certainly be very very small compared to your original founder stake - to the point where it's kind of pointless to get it in the first place. Your investors wouldn't want your initial founder equity to be preferred, but they should have no problem with you putting in your own additional money alongside theirs on the same terms. Many investors like to see their founders have skin in the game.
From the founder's perspective, you're better off making a loan to the company, since you're already so rich with equity. That said, in my experience, investors don't like putting money in just to have the founders take money off the table, especially early on. With my first company, we started off with founder loans, and when we raised our first institutional round, our investors insisted we convert those loans into equity at their same price as opposed to paying ourselves back.
That's why my approach with this second company was to go straight with the SAFE off the bat for my capital infusion.
It is possible that our first company was an anomaly - and that founders putting in additional capital via loans is the standard practice and that most investors are totally cool with you getting paid back on those loans.
Not sure if it's the optimal approach, but this is pretty much exactly what we did. At the onset of the company, I made a capital contribution (beyond the small purchase amount of our founder stock) using a standard YC SAFE with no valuation cap/discount (with an MFN clause). When we later raised a friends and family round, we did so via a SAFE as well, this time with a valuation cap, and I swapped my initial SAFE for the F&F SAFE, and we basically just considered it part of that round.
The second part of your plan is unclear to me. When you issue employees options, those will generally be options to buy common stock, not preferred. And if and when you raise a priced VC round for preferred shares, all of your SAFEs will then convert to preferred shares.
Some basic arguments against are:
1. They are providing a service that adds no (or at least dubious) value to society. And again, I do think it's possible to have highly liquid, highly efficient markets where the amount extracted by prop trading firms is much smaller. But you're right that's an arbitrary statement, and who am I to say it's not already down to a reasonable level. 2. They do extract a lot of value. Maybe they're just siphoning it from banks and other hedge funds, in which case kudos (not to pick on hedge funds - they're just not a sympathetic victim). But probably at least some of it is extracted from mutual/index funds, pension funds, etc. Not the worst thing in the world and good on them for figuring out ways to make money, but it doesn't feel great. 3. Opportunity cost to society of the brilliant folks who wind up working there. Meh.
Way less bad than conflicted parties hurting their clients for their own gain. But I don't think they should be glorified either.