How to raise money in 2024
For most founders, approaching fundraising can be stressful - many options and even more opinions.
Peter Walker and Carta do an amazing job at creating transparency. Recently, they covered the somewhat concerning overuse of SAFEs.
SAFEs have become the first-round gold standard:
- Simple and quick to execute.
- Reduced legal and transactional costs.
- Flexibility in valuation, more founder control.
While they are great for a first round, it's concerning how they are more and more stacked and dragged into later stages (Series A+).
Here's why this might be an issue:
𝟭) 𝗨𝗻𝗰𝗲𝗿𝘁𝗮𝗶𝗻𝘁𝘆
Set value cap too low and you get diluted more, set the value cap too high and investors won’t be interested (+ you have to fill these shoes eventually). Having multiple layers of SAFEs will increase uncertainty.
𝟮) 𝗖𝗼𝗺𝗽𝗹𝗲𝘅𝗶𝘁𝘆
Potential term fragmentation, especially with stacked SAFE rounds: pre- vs post-money valuations, multiple value caps/discounts and side letters. Great fun to unwind all of that in the first priced round!
𝟯) 𝗖𝗮𝗽 𝗧𝗮𝗯𝗹𝗲 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁
Real dilution can become opaque, especially with 3+ SAFEs on different caps, discounts etc. Also be mindful of repeated party rounds potentially creating a minefield on your cap table.
𝟰) 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿 𝗧𝗿𝘂𝘀𝘁
Using a SAFE to bridge might make sense and I'd argue they are currently hiding some down rounds. But: not setting a valuation of your company post seed might be considered questionable + SAFEs lack investor safeguards (e.g. liq preference).
𝗧𝗟,𝗗𝗥: "𝗦𝗶𝗺𝗽𝗹𝗲" 𝗰𝗮𝗻 𝗯𝗲 𝗰𝗼𝗺𝗽𝗹𝗲𝘅 𝗶𝗳 𝘀𝘁𝗮𝗰𝗸𝗲𝗱.
My take:
SAFEs are amazing for a first capital injection as uncertainty will be naturally high in the early days.
However, for clarity and certainty anything after seed should be priced or favor convertible notes vs SAFEs.
What's your take?
Are there good reasons to "SAFE" the way to exit?
#fundraising #SAFE #venturecapital #startups #founders
