Your First Instruments: SAFEs, Notes, and Priced Rounds
How the main ways of taking early investment differ, and what founders should model before signing.
When someone agrees to invest, you need a legal instrument that records the deal. The three most common at the earliest stages are SAFEs, convertible notes, and priced equity rounds. I explain each in SAFEs, Convertible Notes and Priced Rounds. This module focuses on what a founder needs to do with that knowledge.
Understand what you give up
Every instrument eventually turns into ownership. A SAFE or note does not set a price today, so how much of your company it becomes depends on the valuation cap, any discount, and the size of your next round. Many founders are surprised by how much dilution several early instruments add up to.
Model it before you sign
Build a simple table of your ownership today, then show what it would be after each instrument converts, under a few realistic next-round valuations. If you are unsure how to build one, ask an advisor or attorney to help. A few hours spent here can prevent years of regret.
Keep it simple and consistent
Using the same instrument and similar terms for everyone in a round avoids confusion and unfairness. Unusual terms, special rights for one investor, or side agreements can create problems for later fundraising.
Get legal help
These are legal documents with lasting consequences. Have a qualified startup attorney review them, and do not rely on a template alone.
Your task for this module
Build a one-page table showing your current ownership and your projected ownership after a hypothetical raise, under three different valuations.