With Y Combinator’s Demo Day happening at Pier 48 in San Francisco subsequent week, its largest batch of firms ever is on the point of current to an viewers of choose buyers. Having taken Atrium by way of Demo Day myself, I’ve first-hand information of the method. When the founders have completed their pitches, the time to speak numbers will intently comply with. Chief among the many many selections founders will face throughout this time is whether or not to go for the Pre-Cash SAFE or the brand new Publish-Cash SAFE, the 2 standardized authorized paperwork that YC has launched in recent times.
Each variations are supposed to make the method quick, straightforward and honest for each events within the early-stage fundraising course of. However there are essential variations between the 2 that founders ought to look at rigorously.
Primarily, the Pre-Cash SAFE is exceptionally favorable to founders as a result of it will get them pre-valuation funding like a convertible be aware, however debt-free. The Publish-Cash SAFE sweetens a number of the phrases for buyers, like locking of their proportion possession in a priced spherical in a while.
General, we anticipate the Publish-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 geared toward giving founders a common understanding of the adjustments from Pre-Cash SAFEs to Publish-Cash SAFEs. The data offered 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 Publish-Cash SAFEs, join me on April 16th for a webinar the place I’ll dive in a bit deeper.)
Two constructions for elevating startup funding
At this time there are two common methods of structuring a startup fundraising spherical. The primary may be known as a “priced fairness spherical,” and is characterised by the sale of most popular inventory with a hard and fast valuation.