SAFEs Win Below 2.5M and Priced Equity Wins Above It

Founders - when do you raise on SAFEs and when do you raise an equity round?

Looking at rounds raised in 2024, the tipping point seems to be ~$2.5M.

Note that this data looks at all rounds raised in the pre-seed or seed realm.

SAFE domination! Not too long ago, founders would use SAFEs or Convertible Notes only for angel / pre-seed rounds and then move quickly into priced equity.

But today's founders (and 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 given what hits the bar of a "qualified financing" to get those converted 😇

The allure of SAFEs is pretty easy to see - you can raise individual checks without aggregating a full round and the legal fees are minimal. Seeping into early-stage.

#startups #preseed #seed #fundraising #founders

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