This Week in Startups Understanding Financing Structures: SAFEs, Convertibles Notes, Priced Rounds & more with Becki DeGraw | Wilson Sonsini Startup Legal Basics
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Dec 3, 2020 Becki DeGraw, an attorney at Wilson Sonsini, dives into the nitty-gritty of startup financing. She breaks down the world of SAFEs and convertible notes, explaining their unique advantages for quick capital access. The conversation goes on to explore the complexities of legal fees during Series A rounds and the importance of tailored agreements. Becki emphasizes how strong legal counsel empowers founders, ensuring their rights are protected as they navigate the tricky waters of investor relations and funding dynamics.
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Convertible Notes
- Consider convertible notes as a faster, cheaper fundraising alternative to equity rounds.
- These notes convert to preferred stock in the next round, offering no immediate cap table ownership.
SAFEs
- SAFEs (Simple Agreements for Future Equity) are not debt or equity, but a contract promising future equity.
- Created by Y Combinator, they offer quick fundraising with less negotiation than convertible notes.
SAFEs vs. Convertible Notes
- SAFEs and convertible notes differ in that SAFEs have no interest or maturity date.
- YC SAFEs convert into shadow preferred stock (e.g., Series A-1), often mimicking but not identical to the new money's terms.