Fundraising

#SAFE / Convertible notes

Convertible notes are very common for angel to seed stage companies.

Possible criteria

Discount

TLDR: A higher discount is better for the investor.

Valuation Cap

TLDR: A lower valuation cap is better for the investor. The size of the benefit depends on the valuation of the business in the next round.

Example scenarios

Valuation Cap Example

An investor agrees to a convertible note with a 4M valuation cap at seed stage.

• If the startup then raises at a 12M pre-money valuation at Series A, they will be 3x better off than the Series A investor
• If the startup then raises at a 8M pre-money valuation at Series A, they will be 2x better off than the Series A investor
• If the startup then raises at a 4M pre-money valuation at Series A, they will be not better off than the Series A investor