Companies need to be incorporated and founder stock must be issued before executing a SAFE and taking any investment. There should be some time between issuing/paying for founder stock and receiving the investment, to ensure the founder stock purchased was at the correct price (rather than at the price the investors paid) as this is a potential tax issue.
They first step is to nail down a lead investor. They will set the terms for the rest of the round (usually everyone participating in the round gets the same terms to keep things fair).
You should share a high-level plan for how much you are looking to raise. Most investors will expect that you will give up 20% or less for a round so you shouldn’t low-ball yourself by saying you are raising X amount at Y percent.
If they are ready to commit, a lead investor will offer a term sheet (usually for a SAFE convertible note) for the largest amount of the total round. You negotiate terms (there’s really only a few terms in SAFEs) and then their lawyers send you a SAFE to review with your lawyers before signing. The money gets wired to your bank account on a funding date.
After closing the lead investor they help you fill out the rest of the round by providing introductions (angel investors, other funds), but it’s probably better to find angel investors yourself with people of strategic importance or have contacts in a specific industry (angels have incentive to help you and, since there is an abundance of angels, you might as well get the additional benefit of expertise).
Links to this note
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Be Upfront With Seed Investors About Bringing on Another Co-Founder Later
Seed investors are primarily evaluating the team and the space in order to make an investment decision. Having an unknown co-founder they would need to work with in the future is a red flag. If you still intend to do that, be up-front and work closely with them in finding the right person. This is important for dilution in future rounds. You want your investors to share in the dilution if you bring on a co-founder later with material amounts of equity instead of diluting just the current founder(s) share.
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Most investors use the ‘post-cap’ version of a SAFE note (post-money valuation with cap). The terms to negotiate and how they impact the value of the company are:
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Information Asymmetry During Fundraising Is a Big Advantage for Investors
Founders that are fundraising for the first time do not know how venture capital works and need to rapidly learn in time to negotiate terms. Investors have access to more data—they see many deals, know the terms, and how the negotiation went in those deals. Founders need to ask investors about comparable deals or have a network of other founders that can provide this information because it is not public.