Fundraising with SAFEs
Part 7 of a primer on early stage tech fundraising based on YCombinator's guidance and my own learning in-the-trenches as a successful founder
Previous posts in this primer:
YCombinator recommends seed stage founders raise with SAFEs, and I’ve never encountered a reason to go against this logic. YC has many of the best startups in their cohorts, so investors are used to SAFEs as an industry standard. If you are innovating on this (e.g., choosing not to use SAFEs), you’d better have a damn good reason, since adding unfamiliar contracts with slow down your raise. YC has a great overview of SAFEs including links to download a standard post-money SAFE doc on their public website, so I won’t cover the same content here. This YC video also gives some of the basics on understanding SAFEs. What I like most about SAFEs is you set your own valuation and can close investors as they agree to invest, which means you don’t have to wait until your round is full and then herd cats across the finish line. If things go sideways in the markets partway through your raise, you’ll still have whatever money you closed up to that point.
Before you get on the phone with the first person who could possibly write you a check, you should have set up the system that you’ll need to get that person across the finish line. YC’s recommendation is to use Clerky to get SAFEs signed and to send the wire information to investors. Go to Clerky and start to set up a doc that you’ll need someone to later sign so that you see what inputs are needed from them. You’ll likely need to collect:
Investment amount
Their signature block, which is either their legal name or the legal entity they use to invest
The street address
The email address they want it sent to
As soon as you get off the phone with someone who has committed money, you’ll want to send them a follow-up email.
Here’s some draft copy:
Thanks for taking the time to chat on Friday and offering to make intros. I'd love to have you in this round to strengthen the intros and as a signal to other investors. I've got you down for $100k; we are currently raising on a $XM post-money SAFE. Would you please confirm your acceptance and your ability to fund your investment within 10 business days? If this sounds good to you, please send over your signature block and I will send over the paperwork from Clerky.
If you can get the signature block on the call, that’s even better, since then you’ll just send over the docs for them to sign. You’ll still want them to confirm their commitment and ability to wire within 10 business days via email - while it sounds formal, this will be helpful since as you build momentum you’ll want to know who’s really in or out. If you become oversubscribed and are holding space for someone in your round, you want this “handshake deal” to hold them accountable, and to be able to move on to other investors if they don’t wire within 10 business days. If you choose to raise your valuation during your raise, you’ll need to get anyone in progress fully across the finish line with funds wired before doing so - it’s a bad look to have people who committed early but didn’t wire until months later to send in money with a lower valuation than what you raised at later in your process.
Next up: Non-obvious fundraising facts
Luna Ray works with post-PMF founders as an executive coach. She is the founder and Chair of YCombinator-backed Plura and ex-Meta, Instagram, Faire, and Bain & Company.