Understanding SAFEs and Priced Equity Rounds by Kirsty Nathoo
by surajksingh · 28 things on Twos
- https://www.youtube.com/watch?v=Dk6JNTDec9I
- It's the founder and CEO's responsibility to know the cap table and who owns how many shares
- Use a spreadsheet to keep track of it
- SAFE: Simple Agreement for Future Equity
- Receive money now, issue stock later when you raise money at a priced round
- Minimal negotiation: how much money the investor will put into the company and at what evaluation cap
- No debt, no interest rate, no repayment
- It addresses how the SAFE converts when you raise a priced round, if the company sells, and if the company closes down
- SAFE investors are usually the earliest investors so they will actually receive more shares for their initial money because when you raise a priced round you will be at a higher post-money valuation
- Priced rounds have a bunch of things to negotiate
- Post-money SAFEs: amount raised / post-money valuation cap = ownership
- $1m / $6m = 16.67%
- Post-money SAFEs are encouraged
- Restricted stock purchase agreement: founders buy the common stock shares
- Later SAFE investors don't dilute earlier SAFE investors
- SAFE investors are diluted by Series A investors and increasing the options pool
- Priced round:
- SAFEs convert (SAFEs are included in the pre-money)
- Calculates how many preferred shares the SAFE investors get
- Option pool is increased
- New investors invest
- Price per share = pre-money valuation / capitalization
- Capitalization = totally fully diluted shares after safe conversion and option pool increase
- Number of shares = investment amount / price per share
- Summary:
- Use post-money SAFEs
- Understand what you're selling
- Don't over-optimize on caps. Take the money and use it to build the company