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The benefit of convertible notes / SAFE's is that you get the invested cash IMMEDIATELY. This is a non-trivial benefit for most startups. When raising a full r
by Brushfire 12y ago
The benefit of convertible notes / SAFE's is that you get the invested cash IMMEDIATELY. This is a non-trivial benefit for most startups.
When raising a full round of capital, say 1M, you don't get any of it until you 'close', after everyone is committed.
Convertible notes allow entrepreneurs to build progressively towards a close, without waiting for all the cash to come in -- which might come too late. So, sure, if you're flush with cash, then convertible notes are a worse idea relative to a priced round. But when is that ever the case when fundraising?
- bjt 12y agoThe article's discussion of 90 day "top up" terms seems to address that.
- Brushfire 12y agoYeah, but it still isnt the same -- because for the first investor, you still have to get them to agree to pony up the full 500k. When dealing with smaller angels, its easier to get your first 250k - 500k in 50k-100k increments. I do like the idea of setting a price instead of a cap. Even if it means your price is a bit lower than the cap, it should be relatively straightforward to transition from a cap to a price with sophisticated investors, and it protects you in any weird situation.
- ganeumann 12y agoYou can certainly do smaller increments with an equity round. But because equity rounds tend to have leads and the lead is usually the biggest check, they also tend to have most of the money committed at first close. Many note investors also ask that a certain amount be committed before the first close.