If you are an entrepreneur you should use SAFE Notes to raise capital
Early-stage companies that need to raise the first round of capital must select the smartest instrument to grow their business. The two most common are SAFE Notes which is a simple agreement for future equity and Convertible Notes or a form of debt that can convert to equity.
SAFEs have become the preferred instrument in Silicon Valley, which is indisputably the world capital of venture capitalist and start up. A SAFE Note works as a warrant since it’s an option to purchase equity later based on the terms the agreement defined. In 2013, Y Combinator, the Silicon Valley Accelerator developed SAFEs to provide a streamlined, cost effective and lean process that protected entrepreneurs and the investors. It became the most preferred instrument replacing the more traditional convertible note, a debt instrument that allow entrepreneurs to raise capital with a promise to convert into equity at the note’ maturity. SAFE NOTES emerged as the low cost go to instrument to first time entrepreneurs, angel investors as well as VCs investors.
SAFEs have two distinguishing factors, a Valuation Cap and/or a Discount. Here below we break them down:
- Valuation Cap — More commonly known as cap, it’s the maximum valuation that the investor will be valued at if the SAFE already converts to equity…
