This two-hour seminar associated with the below primer will follow the same two-part format. I am hosting it about once a week, ad hoc. The suggested price is $197 but for March 2023 I am offering it on a pay-what-you-want basis, after you take it.
Contact me at email@example.com to sign up for a slot. About me: https://fl0wstate.com/robert/
While focused on founders, the seminar is also useful for:
- Angel investors new to the game
- Early employees looking to better understand the $ situation of their startup
- Legal, finance, and consulting professionals looking to develop expertise in this area
Table of Contents – full primer is here
Part I – Friends & Family $ – Persuasion & Social Dynamics
F&F is generally a better choice for pre-seed because it is a more level playing field in terms of power / knowledge. You may get better terms (higher valuation, perhaps even uncapped or MFN – see part II if you don’t know these terms) but this is not the only reason to do F&F.
Even if you ultimately don’t raise F&F, the exercise of thinking it through is useful for a new founder, as you have existing intuitions about how this would go, but you have little intuition re: institutional investors. And the former will inform your approach to the latter, even if you don’t actually do F&F, because developing an intuitive framework is critical. A two-page primer on this Part I topic is below.
Part II – Technical Basics of Seed Funding – valuation & the YC-SAFE
Before 2013, the instrument used for pre-seed and seed funding was the convertible note, which is essentially a loan that converts to equity upon a Series A financing. This convertible note is orders of magnitude simpler to transact than a Series A priced preferred equity round, and thus was more appropriate for a small financing. In 2013 YC created an even simpler instrument called the Simple Agreement for Future Equity (abbreviated as “safe” by them but more commonly capitalized as “SAFE”. The SAFE dispenses with the formal construct of the loan as the basis of the instrument and thus can be viewed as a sort of convertible note minus the loan, interest, and maturity date.
In terms of valuation, the terms “pre-money” and “post-money” are at their core very simple, but the YC-SAFE has vastly complicated how the terms are used, which is the core of Part II. A two-page primer on this Part II topic is below. We will also discuss how leveraging an uncapped or MFN SAFE can simplify your pre-seed in the context of Part I.