Equity Dilution = SAFE Amount / Valuation Cap For example, if you raise $500k from a SAFE with a $5M post-money valuation cap, you are effectively selling 10% of your company. If you raise $1M with the same post-money valuation cap, that number rises to 20%. The lesson for founders...
The “Valuation Cap” of this SAFE is $(“valuation cap amount in dollars”). The “Valuation Cap” entitles the Investors to equity priced at the lower of the pre-money valuation or valuation cap. The valuation cap sets the maximum price that your convertible securities will convert into eq...
Share Price = $20 million Pre-Money Valuation ÷ 10 million Pre-Money Shares Outstanding = $2.00 Per Share With a 20% discount, investor’s share price is equal to $1.60 per share. Share Price = $2.00 x (1 – 20.0%) = $1.60 per share However, due to the valuation cap of $10...
Post-Money vs. Pre-Money Valuation Many of the problems with SAFE notes directly link to how few entrepreneurs and investors understand how important valuation is on a post-money basis. Deals marketed to venture capitalists are generally marketed on a pre-money basis, but investors should understa...
As mentioned, SAFE notes either come with or without a valuation cap. A“capped”investment round places a ceiling on the valuation once the notes are converted into equity, which gives investors an idea of how much of the company they’ll own. ...
Regularly update and review your cap table, especially after each round of SAFE notes, to keep track of potential ownership changes. Use a great lawyer who has worked with many startups - strange terms could sink your next round. Be prepared for future investors to request similar or more ...
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Part 3: Equity Valuation: After a 10-year-long equity bull market and high equity valuations (and low bond yields), you will face a higher failure probability with the 4% Rule than the Trinity Study may suggest. All failures of the naive 4% Rule occurred when theShiller CAPE Ratiowas el...
Pre-money and post-moneySAFEs differ in how the company’s value is determined in a SAFE investment. For a pre-money SAFE, the valuation cap is set before including the amount raised in the SAFE round, which can lead to a greater dilution for founders since all SAFEs and funding affect...