If you are an Entrepreneur and have a pulse, fund raising is one of the worst things that you have to deal when you are running a Startup.
Today, I am going to show you how to love it.
Negotiating is the most important skill that any Entrepreneur should have. And it is the only skill that helped me save my company a couple of times.
I talked before about information asymmetry which is a fancy word for knowing something that the other person doesn't.
The last two times I raised money for my Startup, I did it through SAFE. It also took me just a week to close the round but that is another story.
SAFE has many advantages (and disadvantages of course) but the most important advantage is that it gives you an informational edge.
The NUMBER ONE issue that I face whenever I am fund raising is having the first couple of investors commit. After that it is much easier. So much easier. But what usually happens is that everyone waits for the other person to make the first move and then ALL of them have to go together at the same time.
Or even worse, you round has to close at a specific date and if you don't have all your investors lined up - poof.
SAFE gives you the informational edge as your investors can come in random order. You can even have your round open all year long if you want. There is no start and end date.
Your fund raising conversation should be:
Hey we have a round open, with minimum $25k to fund our sales. The cap is $10M.
What makes it more interesting is that you can give different terms to different investors (we call this high resolution investing) based on how early they join the round, their importance or the amount money the put in your company. All with the same, super simple document. Pure epicness.
Take this example:
For early investors, I am willing to give a cap of $3M and 10% discount. After I reach $500k, I won’t give any discount but one investor that I consider strategic I want her to join so I give her a cap of $2.5M and 10% discount.
After 6 months, I am killing it but I have a couple of people that are still interested so then can join with a $5M cap.
Same document. No legal fees. Plus, you don’t corner yourself by having to coordinate with all the investor and push them to commit before an end date.
If you ever tried doing fund raising using Converting Debt or equity, first of all you are an idiot and second of all open your eyes and see how it is done with SAFE. Unless you are a masochist. Or an idiot.
- Sat 13 June 2020
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