Re question 1: you read correctly. An investor just get its money back in a change of control. An investor using this form of safe would have to be very confident that the safe would be amended to match a later safe with better terms. To be perfectly honest, this form of safe may not be very popular for this reason, but uncapped notes with an MFN clause have been popular, so we decided to have a safe like that too.
Re question 2: if the company has drafted its IRA to exclude the safe holders from pro rata rights, then the company must give those rights via side letter instead. Many investors feel very strongly about pro rata rights, so we drafted the safe to ensure that the company had to give them, but with some flexibility as to where (e.g., in a side letter rather than in an IRA).
Aha. It seems odd then to say that there are two choices in the case of MFN conversion, when they amount to the same thing.
I know YC has seen MFN usage in the "everyone gets $100k" scenario, but I also could see them useful for family and friends rounds where an unsophisticated investor with a conflict of interest wants to put in the first $10k but not set a price. In that case, a default conversion might make sense as an option.
