Fundraising & Investors

What is a SAFE and how does it actually work?

A starting point

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, without setting a valuation today. It's fast, cheap, and standardized, which is why nearly all YC-style seed rounds use it. Use the official post-money SAFE and understand that post-money means investors' ownership is locked in before your next round dilutes it.

Go deeper

Read

📄 Article
Free Intermediate

A Guide to SAFEs, Caps, and Discounts (Startup Library)

From Y Combinator Startup Library by Kirsty Nathoo / Y Combinator varies

Why we picked it

YC's fundraising library collects the canonical explainers on how SAFEs convert, how caps and discounts work, and how they dilute you. The most trustworthy free explanation of the instrument almost every seed round uses.

  • A valuation cap sets the max conversion price; a discount gives a percentage off the next round
  • Stacked SAFEs at different caps all convert together and can add up to serious dilution
  • Model the conversion before agreeing terms, not after
Open ycombinator.com →
📄 Article
Free Intermediate

16 Startup Metrics

From a16z by Andreessen Horowitz (a16z) ~15 min read

Why we picked it

The reference primer on the metrics and market-sizing logic investors use, including bottom-up market sizing that keeps founders honest about how big a market really is. Canonical a16z source.

  • Size markets bottom-up from customer count and willingness to pay
  • Know the metrics that actually signal a healthy business
  • Distinguish real traction from vanity metrics
  • Use consistent definitions when comparing yourself to the market
Open a16z.com →

Use

🛠️ Tool
Free Intermediate

YC Safe Financing Documents (Official Post-Money SAFE)

From Y Combinator by Y Combinator templates + primer

Why we picked it

The primary source for the SAFE itself, plus YC's plain-English primer explaining post-money mechanics. Use the official document, not a random copy, and read the primer before you sign.

  • Post-money SAFE lets you calculate investor ownership precisely and immediately
  • Five standard variants (cap, discount, MFN, etc.) plus an optional pro-rata side letter
  • It's a starting point usable in most situations without modification
Open ycombinator.com →

People also ask

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 → What tools should I use to track competitors and market landscape? Start free and manual before you pay for anything: Google Alerts and their newsletter for moves, G2/Capterra reviews for weaknesses, Crunchbase for... Intermediate 2 resources →