Raise & Fund

Raising your first round of financing?

The first key fundraising decision most founders need to make is whether to raise on the “Pre-Money SAFE” form or newer “Post-Money SAFE” form. The correct answer will depend on certain variables like the amount being raised and future fundraising plans.  Once this decision is made founders will next need to decide on the valuation cap at which the SAFE will convert, among other terms.  Founders are often surprised to learn what we see in the market with respect to valuation cap! It is often much higher than they would have guessed. Although SAFEs have become the dominant instrument for raising the first outside capital, particularly on the West Coast, some investors do still prefer convertible notes, which contain terms like an interest rate and maturity date which are not included in SAFEs.

If you raise money using SAFEs or convertible notes, these instruments will convert into equity as part of your first priced round or equity financing, whether Series Seed or Series A.  Completing an equity financing is typically a longer, more document intensive project, as there are numerous contracts and shareholder agreement that need to be drafted and negotiated with your lead investors.  There are just many more terms to consider as part of an equity financing like liquidation preference, stockholder protective provisions, board of director composition and registration rights, to name a few.  Getting the best terms starts at the term sheet stage and is a combination of your leverage – do you have several term sheets; investor FOMO; and the skill of your lawyers and advisers.  It is difficult to make any terms you agreed on in your first round less onerous in future rounds, so we counsel founders to pay special attention to what they are willing to agree to as part of a Series Seed or Series A financing, as there is a high likelihood those terms will carry over in future rounds.

Whether you are raising a pre-revenue seed deal or a late-stage pre-IPO round, hands-on experience alone is not sufficient for ensuring a seamless financing process. The challenge lies in keeping deals on track, on time and on budget using streamlined forms like our Simple Series A documents, project management software, and right-sized deal teams.  Check out the resources below if you are raising a round of financing or just wondering whether bootstrapping or venture capital is the right path for you.