If you're a pre-seed founder, you need to get familiar with SAFEs.
89% of all the money raised in pre-seed rounds went through SAFEs instead of convertible notes in Q4 2023.
Pre-seed defined here as any fundraise under $1 million - I realize that's not a perfect definition, but it should give us decent direction on underlying trends.
Interesting to see that while the SAFE was created in 2013 or so, it was neck and neck with the convertible note for many years until taking off in Q1 2020. The surge in startup interest from the pandemic period has really cemented the dominance of the SAFE in recent years.
𝗦𝗔𝗙𝗘 𝘀𝘁𝗮𝘁𝘀:
89% of all funding, 85% of all signed notes for pre-seed in Q4 2023
About 80% of those SAFEs were post-money, which is the YC default. Pre-money SAFEs, which are more favorable to the founder, made up 20% or so.
SAFEs made up over 90% of fundraising in SaaS, Fintech, Gaming, and Edtech.
The only three industries where Convertible Notes still took in at least 30% of all funding were Medical Devices, Pharma/Biotech, and Energy. Hardware saw about 25% CN funding.
One of the major shifts underlying this SAFE growth is the frequency of founders raising multiple tranches of financing before turning to priced equity. Many founders will raise multiple SAFE rounds - some get to 4 or 5 different SAFE raises before their first priced round.
Is this a good thing? Up for debate. The SAFE is a fantastic way to simplify the initial fundraise and allows early founders and investors to move quickly.
But eventually the diligence inherent in a priced raise can be beneficial to investors and indeed the company itself. Dilution can get very tricky to track otherwise!
(although Carta can help founders understand their dilution at a glance with our SAFE tools - totally free for anyone who has raised less than $1 million).
The more you know 😄
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#cartadata #SAFEs #fundraising #founders #startups
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