As a startup founder, securing funding is one of the biggest challenges you'll face. And while SAFE investments might seem like an easy and straightforward option, it's important to be aware of the potential pitfalls.
One of the biggest issues with post-money cap SAFEs is that they can end up protecting investors from all dilution caused by funds taken in SAFE financings after their investments.
This is contradictory to basic investment and dilution principles, which state that new money should always dilute old money. For founders, this means that if you take on too much money through a post-money cap SAFE, it could end up limiting your ability to raise future rounds of funding. This is because potential investors may see that a significant portion of the company is already owned by existing investors who are protected from dilution, making it less attractive for them to invest.
In our new series "Startup: Confidential," we explore the real-life challenges faced by startup founders, including issues related to fundraising. In Episode 3, we meet Explosive.io, a company that raises a large amount of money through a post-money cap SAFE, despite knowing that their achievements don't yet justify such a valuation. Through their story, we highlight the importance of understanding the complexities of fundraising and making
informed decisions about the types of investments you take on.
So if you're a startup founder looking to raise funds, it's crucial to do your research and consider all of your options carefully. And if you want to learn more about the real-world experiences of startup founders, be sure to check out "Startup: Confidential" and Episode 3, "The SAFE Way."