Raising less than $2M? Use SAFEs.
Raising more than $2M? Flip over to priced equity.
Judging from more than 7,000 rounds raised between Jan 2023 and March 2024, the flip point for founders choosing one fundraising type over the other is between $2M-$3M.
Taking a step back, this is pretty wild! Not too long ago, founders would use SAFEs or Convertible Notes only for angel rounds (generally less than $500K) and then move quickly into priced equity.
But today's founders (and pre-seed VCs) are perfectly content to keep fundraising on SAFEs up into the millions of dollars.
𝟯 𝗸𝗲𝘆 𝗶𝗺𝗽𝗮𝗰𝘁𝘀 𝗼𝗳 𝘁𝗵𝗶𝘀 𝘀𝗵𝗶𝗳𝘁 𝘁𝗼 𝗦𝗔𝗙𝗘𝘀:
Founders are more willing to raise SAFEs at 2, 3, or even 4 different valuation caps. Is this good? It can work out just fine, but it does add to the eventual dilution in the first priced round.
Pre-seed VCs are more willing to use SAFEs in conjunction with a side letter. This gives them quasi-priced round rights (like MFN, pro rata, or information rights) while taking advantage of the speed and lower cost of the SAFE. Founders - read those side letters carefully!
Some founders starting out today will only try to raise $1M-$2M 𝘁𝗼𝘁𝗮𝗹 in the funding journey (before getting their growth from revenue). Is the SAFE the right instrument for that sort of funding path? Opinions differ 😇
Heads up for founders - you can build your cap table on Carta Launch for free until you raise your first $1 million. And we've got SAFEs built right into the platform! Create, send, sign, and wire on SAFEs with a few clicks.
The data below does shift a bit for different industries - give me a shout in the comments with your specific sector and I'll try to find the "flip point" for companies like yours.
#cartadata #SAFEs #preseed #startups #fundraising #founders
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