How Should Pre-Seed Founders Choose Their SAFE Cap

How should pre-seed founders choose their SAFE valuation cap?

Option 1: just guess!

Option 2: educated guess based on capital needed and expected dilution.

Option 1 is fun, but let's consider Option 2.

Carta data below shows that the median valuation cap placed on post-money SAFEs grows alongside the total raised by a given pre-seed company. Now, some companies will raise a little cash on a small cap SAFE, then go back and raise more money from different investors on a new, higher cap SAFE.

That's a reasonable approach. But it also introduces some headaches when it comes time to raise your first priced round. Those early believers will have their SAFEs convert at different rates and you may be left holding less of your company than you expected.

Important to have 2 things in mind while raising on SAFEs:

1. How much money do I need to hit the next key milestones?

2. How much dilution am I willing to stomach?

We'll skip the conversation around whether big SAFE raises are actually seed rounds for now, but just know that's a growing part of the SAFE market.

Of course if you want to model out your SAFE round before you get started, google "Carta safes" for a free interactive calculator.

#cartadata #SAFEs #founders #startups #preseed #fundraising