SAFEs Have Devoured Pre-Seed and Now They Eat Seed Stage

SAFEs have devoured pre-seed fundraising — and now they've come for the seed stage.

It's essential the startup founders today who are looking to raise venture capital (or even those who want to raise angel money and then fund through revenues) understand the SAFE.

Jump back in time with me to the first half of 2021. Startups are booming. Fundraising is comparatively simple. The Roaring 20s vibe has taken hold across early-stage venture.

And SAFEs are used in very specific circumstances. From the data below, it's clear that the unwritten line was $1 million. If you were raising less than that, use a SAFE. More than that, go to priced equity.

(yes, there were convertible notes in there too, I've excluded them from the story for simplicity. Apologies to the note aficionados among you).

Now come back to the present day.

𝗜𝗻 𝘁𝗵𝗲 𝗳𝗶𝗿𝘀𝘁 𝗵𝗮𝗹𝗳 𝗼𝗳 𝟮𝟬𝟮𝟭, 𝗦𝗔𝗙𝗘𝘀 𝗺𝗮𝗸𝗲 𝘂𝗽 𝗺𝗼𝗿𝗲 𝘁𝗵𝗮𝗻 𝗵𝗮𝗹𝗳 𝘁𝗵𝗲 𝗿𝗼𝘂𝗻𝗱𝘀 𝗿𝗮𝗶𝘀𝗲𝗱 𝗮𝗹𝗹 𝘁𝗵𝗲 𝘄𝗮𝘆 𝘂𝗽 𝘁𝗼 $𝟰 𝗺𝗶𝗹𝗹𝗶𝗼𝗻.

Two questions, then. Why did this happen and is it a good thing?

Why:

• Investors got more comfortable with SAFEs at larger dollar amounts, probably due to the introduction of side letters into many deals.

• The fact that companies now often raised multiple SAFE rounds means that all those investors receive the anti-dilutive benefits of the (post-money) SAFE.

• Venture hubs across the country followed the Silicon Valley lead towards higher usage of this funding pathway.

Is it good:

...kinda? Look, the benefits in legal costs alone justify the use of a SAFE for rounds that don't raise much capital (say $2M or less).

But the trend towards raising 2 or more rounds of capital on SAFEs is a little alarming.

Priced equity is not a bad thing!

#cartadata #SAFEs #startups #founders #fundraising