With Y Combinator’s Demo Day happening at Pier 48 in San Francisco subsequent week, its largest batch of firms ever is on the brink of current to an viewers of choose buyers. Having taken Atrium via Demo Day myself, I’ve first-hand data of the method. When the founders have completed their pitches, the time to speak numbers will carefully comply with. Chief among the many many choices founders will face throughout this time is whether or not to go for the Pre-Cash SAFE or the brand new Submit-Cash SAFE, the 2 standardized authorized paperwork that YC has launched lately.
Each variations are supposed to make the method quick, straightforward and truthful for each events within the early-stage fundraising course of. However there are essential variations between the 2 that founders ought to study fastidiously.
Primarily, the Pre-Cash SAFE is exceptionally favorable to founders as a result of it will get them pre-valuation funding like a convertible word, however debt-free. The Submit-Cash SAFE sweetens a few of the phrases for buyers, like locking of their share possession in a priced spherical in a while.
Total, we count on the Submit-Cash model to change into extra frequent, particularly if the corporate is elevating a spherical above $1 million or $2 million, and the buyers have extra leverage to ask for it within the negotiation.
(Observe: This text is aimed toward giving founders a basic understanding of the adjustments from Pre-Cash SAFEs to Submit-Cash SAFEs. The knowledge supplied relies on my skilled expertise and opinions, and shouldn’t be used with out cautious consideration and recommendation by certified advisors and authorized counsel. Additionally, to be taught extra and ask questions on Pre and Submit-Cash SAFEs, be part of me on April 16th for a webinar the place I’ll dive in a bit deeper.)
Two buildings for elevating startup funding
Immediately there are two basic methods of structuring a startup fundraising spherical. The primary might be known as a “priced fairness spherical,” and is characterised by the sale of most well-liked inventory with a hard and fast valuation.