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Why You Should Embrace the Post-Money SAFE and Avoid the Pre-Money SAFE
It’s the best vehicle for investing in early-stage startups
Last week I had the opportunity to speak about why I think the post-money SAFE is the best investment vehicle for early-stage start-ups, better than convertible notes.
While I was preparing my presentation, by some weird cosmic coincidence, I had not one but three startups pitch me on investing using the old pre-money SAFE that investors hate. It made my head explode.
I thought the old pre-money SAFE was dead and buried, but it seems to be making a comeback. Unfortunately, this resurgence is highlighting the horrors of the pre-money SAFE and eclipsing the greatness of the post-money SAFE.
Meanwhile, skittish investors are continuing to just say no to SAFEs without considering the critical difference between the two versions.
So I’d like to explain why investors should love the post-money SAFE and why startups should avoid the pre-money SAFE if they want to attract investors. The reasons are in the details, so if you don’t want the tl;dr, here’s the executive summary:
- Startups: The pre-money SAFE was deprecated in 2018 because investors hated it. We hate it even more now. It’s a non-starter. If you want investment, don’t use it.
- Investors: The pre-money SAFE sucked. It’s gone. The new post-money SAFE is better than convertible notes. Get over your instinctive dread of the SAFE and welcome the post-money SAFE as the best way to invest in startups.
Startup Investment Options
The options to invest in a startup are:
- Common stock
- Preferred stock
- Convertible note
- SAFE
Common stock is for founders and employees. For investors, they’re a non-starter. Investors require preferred shares with protections that prevent the founder from unilaterally wiping out our investment.
Preferred shares are ideal, but there’s a lot of terms and paperwork which takes time and money. Unless you’re raising at least $2M, preferred shares rarely make sense to issue.
