For example, founders may offer a valuation cap that is low to close a SAFE investment quickly without considering its actual impact upon conversion. Estimating Ownership Dilution From SAFEs The dilution possible when issuing SAFEs is a major factor that founders and investors should understand. A...
Post-money valuationis the value of a company after external funding takes place. Post-money valuation includes all outside financing or capital injection. When a business issues additional SAFE notes, the equity moves further from the original valuation cap, leading to a large gap between the pr...
For example, there could be an instance in which after the SAFE note is signed and a valuation cap discount is arranged, another investor offers a larger cap and requests that the SAFEs convert to a higher cap. SAFE notes do come with some risks. Since the launch of SAFE notes in 2013...
The lower the valuation cap, the more shares the SAFE investor can get per dollar invested. Discount Rate The discount rate gives the SAFE note investor a discounted price per share compared to the price paid by new investors in the next equity round of financing. For example, a 20% ...
The difference is how you calculate the “company capitalization”—the denominator in the above calculation of the SAFE price—at the time the SAFE converts. While the most common SAFEs in the marketplace are “post-money” (including, for example, the Y Combinator forms of valuation cap SA...
Be prepared for potentially challenging negotiations in later rounds due to deferred valuation decisions. Be aware of how multiple SAFEs can dilute your equity. Regularly update and review your cap table, especially after each round of SAFE notes, to keep track of potential ownership changes. ...
Now, the two most important things about safe notes when it comes to the structure and the terms are either there is a cap, meaning you’re already establishing a valuation where they’re not going to go over when that conversion happens. Or, perhaps, the discount that you’re providing ...
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For example, if you’re raising £500,000 on a £2 million pre-money valuation, then the post-money valuation (the valuation at the end of the round) is £2.5 million. But when it comes to a YC SAFE, post money means something entirely different: it means the valuation ...
an acquisition, or an initial public offering (IPO). Conversions usually happen at a discount or valuation cap as anincentive to invest early.Suppose the triggering event does not occur before the maturity date. In that case, the investor can ask for a payout of the original investment or...