Module 2 · Chapter 3

SAFEs and Advance Subscriptions

A young company often takes money before anyone can agree what it is worth. This chapter explains the instrument that allows it, and the three numbers that later set the price.

≈ 13 min read 8-question test

In this chapter

  • Why early investors pay before a price is agreed
  • How the cap, the discount and the longstop set the price later
  • Why an advance subscription must never look like a loan

3.1Money now, price later

A young company often needs money before anyone can say what it is worth. To issue shares, it must agree a price, and a price is a valuation. If the price is too low, the founders give away too much. If it is too high, the investors overpay, and every later investor argues from that number.

A priced round also needs a full set of documents, and their cost eats into a small raise. So early investors often pay now and let the next priced round set the price. Their money then turns into shares at that price, with a reward for coming in early.

Key point

The early money converts at a price that a later investor sets. Until then, the early investor holds a contract and no shares.

Also in this chapter

  1. Three ways to invest before there is a price
  2. The cap, the discount and the longstop
  3. Working out the price: the lower of two
  4. Why the money must never look like a loan
  5. The US form and the English form
  6. What the angels held before conversion
  7. What the Seed shares are paid first
  8. The register does not show this money
  9. Your job

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