Step 2: Safe Round
A Safe
(Simple Agreement for Future Equity) is the most common way for early-stage startups to raise their first external capital. Unlike a pricing round, a SAFE does not immediately create new shares or set the share price. Instead, investor money later gets converted
When you do your first pricing round. The standard template is YC SAFE, a short, founder-friendly document used by thousands of startups.
most are safe today postage money safes – The valuation range also includes safe money. This means that if you raise $1 million at a $10 million cap, investors will own exactly 10%. This is simpler and more predictable than the old pre-money safes, where your dilution depended on how much capital was raised in total across all the safes.
In practice, startups almost always have Multiple Secured Investors In this round – angel investors, small funds and accelerators each write their own security notes. some vc have ownership goalWhich means they want to own a certain minimum percentage to make the investment worthwhile. As you raise more money, more investors join the round.
the two key words are valuation range
and this discount rate. The investor gets the one that gives him more shares. (Note: Most post-money safes only use a limit with no discount – try setting the discount to 0% for the modern standard.)
valuation cap trap
Feels like a high bar validation – but it’s really a promise of development
Before your next pricing round. Setting the limit too high creates serious risks:
- Down Round Risk: If your Series A valuation falls below the range, it indicates that the company has not grown as expected. This leads to difficult conversations between investors, ruins your negotiating position, and can scare off new investors altogether.
- Compound Dilution: With post-money SAFEs, each SAFE investor’s ownership is fixed by the limit – but earlier SAFE holders are not diluted by subsequent SAFE holders. Stacking multiple SAFEs puts the entire impact on the founders.
- Investor Misalignment: Once the valuation reaches their limit (their deal is closed), SAFE holders may put pressure on you to close your next round, even though waiting may yield a better outcome for the company.
- Difficulty in Recruitment: A higher limit increases the 409A valuation for employee options, meaning early employees get a worse deal with higher strike prices – making equity compensation less attractive.
Rule of thumb: Set a range at the valuation you are confident the company can make more than Within 18 months.
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