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:
- Total amount to be raised (the total cash that will be transferred to you)
- Post-money valuation
When you divide the total being raised by the post-money valuation you get the percentage of the company being given to investors in the round (usually 20% or less).
In addition, the largest investors in the round will typically ask for a side-letter with additional terms like prorata rights, future board seats, and management rights.
See also:
- How a seed round works
- Information asymmetry during fund raising is a big advantage for investors
- Pro rata rights causes conflict between early and late investors
Links to this note
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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.