Raise on what instrument?

The game of venture capital involves founders selling equity in their companies for cash. Pretty simple, when you think about it.

Except in recent years, there's been a substantial uptick in founders selling (the promise of) equity for cash through convertible instruments like SAFEs and Convertible Notes.

For young companies, these instruments make a lot of sense because deciding on a valuation for a 6-month old startup is a futile exercise. Let's just get this founder some capital to have a go at it and hopefully a future investor will price our equity later on.

But lots and lots of startups that already have real valuations are using these convertibles.

…but why?

Could be that convertibles (especially SAFEs) are easier to get done quickly so both parties turn to them when time is of the essence.

Could be that convertibles make it slightly easier to fund companies who need a bridge without calling into question the current valuation.

Could be…lots of things.

But there's no denying that the introduction of convertible financing in the middle of venture rounds has made the whole thing messier.

Onwards!

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Cheers,

Peter Walker

Carta Insights