A lot of entrepreneurs still don’t fully understand SAFE notes and how to use them.
They are the single most important innovation in startup financing in the past 15 years. (@ycombinator)
You can close in minutes, raise only what you need with no legal fees.
🧵👇🏻👇🏻👇🏻
They are the single most important innovation in startup financing in the past 15 years. (@ycombinator)
You can close in minutes, raise only what you need with no legal fees.
🧵👇🏻👇🏻👇🏻
SAFE notes were invented to solve a few problems.
1/ it is hard to coordinate a lot of investors to close a “round”. Better to close one by one.
2/ preferred stock is expensive to document legally. SAFE postpones that complexity to later.
3/ Valuation can change quick.
1/ it is hard to coordinate a lot of investors to close a “round”. Better to close one by one.
2/ preferred stock is expensive to document legally. SAFE postpones that complexity to later.
3/ Valuation can change quick.
4/ People used convertible debt for similar purposes. But it was still debt, and so could bankrupt the company if there was an aggressive investor and it came due.
SAFE’s allow “high resolution” fundraising. Whenever someone is excited, you close their money on the spot.
SAFE’s allow “high resolution” fundraising. Whenever someone is excited, you close their money on the spot.
The SAFE docs are available for free here: ycombinator.com/documents/
There are three key things to understand: discount, valuation cap, and MFN.
There are three key things to understand: discount, valuation cap, and MFN.
Discount -> When a priced venture capital round is raised. The investor may get a discount on the price it is raised at. 10-20% discount is a nice incentive, though not required.
Valuation Cap -> The highest valuation that the investment will convert into shares at…
Valuation Cap -> The highest valuation that the investment will convert into shares at…
the lower the valuation cap, the more of the company the early investor owns. Start at $4-10 million cap and rapidly go upward based on investor enthusiasm. I have seen caps as high as $30-$50 million.
MFN -> Most favored nation. Pretty fair to early folks.
MFN -> Most favored nation. Pretty fair to early folks.
MFN says you won’t give a better deal to later investors that you have to the person writing the check now. Smart investors ask for it.
With this info, the legal docs are Mad Libs easy. If you do need a lawyer, you can get a few hours of help here. upcounsel.com/safe-notes
With this info, the legal docs are Mad Libs easy. If you do need a lawyer, you can get a few hours of help here. upcounsel.com/safe-notes
When you start fundraising, make sure you have a SAFE filled out, loaded in Docusign or equivalent and that you have bank wire instructions written up.
If a call goes well, instantly try to confirm an amount and send the SAFE. Enthusiasm has a short half-life, so move fast.
If a call goes well, instantly try to confirm an amount and send the SAFE. Enthusiasm has a short half-life, so move fast.
As noted in my other thread, nearly every startup should not even talk to VC until you have successfully raised $1-2 million on SAFEs or are cash flow positive.
This raise essentially shows you have startup/investor fit, just like product/market fit.
This raise essentially shows you have startup/investor fit, just like product/market fit.
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