Safe valuation cap and discount

Investor has purchased a safe for $10000. If the series-a investors pay $ 1. SAFE investors convert at $ 0. The cap value never changes. The discount only applies when the cap value isn’t reached. Consider the same situation as Scenarios andbut the convertible debt agreement includes a 20% conversion discount instead of a valuation cap.

Red and cap means a cap applies. Cap vs discount tables. Ignore what happens when the discount is 100% since that is obviously silly. Obviously the higher the discount, the more likely it is that a discount will apply.

That’s the end of that. A valuation cap sets the highest price that can be used to set the conversion price. At the time of conversion, the investor can take advantage of either the discount or the valuation cap — whichever is more favorable. SAFEs can include a discount, a valuation cap, both, or neither.

However, it is not common for either to be absent, as that would discourage investors. Example 2: a VC invests $2. M on a pre-money valuation of $4M. First, we work out which valuation to use.

No Financial Knowledge Required. Accredited Valuation Methods and PDF Report. The next tables I made show you when a cap or a discount would apply to the SAFEs.

Valuation cap The valuation cap specifies the maximum valuation at which the investment converts into equity or shadow shares. Both convertible notes and SAFEs are designed to convert equity upon certain trigger events, commonly at the next round of financing. Both instruments typically offer a discount and a valuation cap, which are investor-friendly clauses. Further, it wouldn’t reward the early investor for the finance offered through the Convertible Note.

Hi I am raising a seed round and dont know how to set a valuation cap and discount. Is a valuation cap the same as what you would expect your current valuation to be? Really need help and advice on this since it is confusing.

But because of the 20% discount, the cap doesn’t come into play until the discounted amount exceeds the cap. In this example, that means the future valuation must exceed $5M before the cap comes into play.

If someone invests $million through a safe with a 10% discount, the safe will always convert into shares that are worth 90% of what someone would have to pay for the same number of shares in the preferred stock financing. Some safes have both a valuation cap and a discount. When safes with both a valuation cap and.

It entitles investors to equity priced at the lower of the valuation cap or the pre-money valuation in the subsequent financing. Typical Valuation Caps for early stage startups currently range from $million to $million. For example, if the SAFE contains a valuation cap, then there is a cap on the conversion price (i.e., it cannot be higher than the price per share based on the valuation cap ). Let’s look at a convertible note example with a $4M cap and a 20% discount.

For example, a $500k safe at a $million post-money valuation cap means the founder has sold 5% of the company. Adding an additional $1M at a $million post-money valuation cap means the founder has sold 6. Add that to YC’s 7% from our post-money safe and founders will know where they stand heading into their Series A, which is critical since that round dilutes everyone further.

Conversion price = lesser of cap or discount, if applicable. Automatic conversion to preferred.