Valuation, SAFEs & term sheets

What is a SAFE and how does it actually work? A SAFE (Simple Agreement for Future Equity) lets an investor give you money now in exchange for equity later, when you raise a priced round, withou... Beginner 3 resources → What's the difference between a valuation cap and a discount on a SAFE? A cap sets the maximum valuation at which your SAFE converts, protecting the investor's upside if you raise your next round at a high price; a disc... Intermediate 3 resources → How is my startup's valuation actually decided at the early stage? At seed there's no spreadsheet truth; valuation is set by market comps, your traction, the strength of the team, and mostly by supply and demand fo... Intermediate 3 resources → What do the key terms in a term sheet actually mean? Term sheets split into economics (valuation, option pool, liquidation preference) and control (board seats, protective provisions, voting). The sca... Advanced 3 resources → How do SAFEs and term sheets differ in India versus the US? India can't use the plain US SAFE directly because of company-law constraints, so founders use the iSAFE (structured as compulsorily convertible pr... Advanced 3 resources → How much dilution should I expect across seed and Series A? Plan for roughly 10-20% dilution per priced round plus the option pool, and remember that stacked SAFEs at different caps all convert at once and c... Intermediate 3 resources → A SAFE has no valuation cap and no discount. Should I ever sign it? Almost never as a founder, because an uncapped, undiscounted SAFE means the investor is taking early risk but getting priced at whatever your next ... Beginner 3 resources → How do stacked SAFEs at different caps convert into a mess at my priced round? Every SAFE you sign at a different cap converts to equity at the priced round, and if you've raised on three or four caps over 18 months you can en... Advanced 3 resources → Post-money SAFE or pre-money SAFE: which one am I actually signing and why does it matter? YC's post-money SAFE (the standard since 2018) locks the investor's ownership percentage the moment they sign, which means every new SAFE you add d... Intermediate 3 resources → Can I even use a SAFE in India, or do I have to do a CCPS or convertible note? A US-style SAFE has no clean legal home under Indian company law, so most Indian-incorporated startups raise early money through Compulsorily Conve... Intermediate 3 resources → What is a liquidation preference and how can a 1x participating clause quietly gut my exit? A liquidation preference decides who gets paid first when you sell, and a 1x non-participating preference (investor gets their money back OR their ... Advanced 3 resources → Should I raise on a SAFE or just do a priced round at seed? Raise on a SAFE when speed and low legal cost matter and you're taking money from a handful of angels, because you skip the negotiation and lawyer ... Intermediate 3 resources → An investor wants a pro-rata right. What am I giving up and is it standard? A pro-rata right lets the investor put more money in at your next round to keep their ownership percentage, and for a serious early backer this is ... Advanced 3 resources → The valuation the investor is offering feels low. How do I know if I should push back or take it? Chasing the highest possible valuation is one of the most common early-stage mistakes, because a valuation your traction can't grow into sets you u... Beginner 3 resources → What does a board seat in my term sheet actually let the investor do? A board seat gives the investor formal voting power over major decisions (budgets, hiring the CEO, selling the company, raising the next round), wh... Advanced 3 resources → How big should my ESOP pool be, and why does the term sheet always want it carved out pre-money? Investors almost always ask you to create or top up an ESOP pool (often 10 to 15 percent) before the money goes in, which is the option pool shuffl... Advanced 2 resources → What is an MFN clause in a SAFE and how can it come back to bite me? A Most Favored Nation clause lets an early SAFE investor automatically get the best terms you give any later SAFE investor, so if you raise the nex... Advanced 3 resources → How do I read a term sheet without a lawyer so I know which clauses to actually fight over? Read every term sheet knowing that only a few clauses truly move your outcome: valuation and pool (dilution), liquidation preference (exit payout),... Beginner 3 resources →