Startup Funding Deal Terms: SAFEs, Convertible Notes, Equity Financings

Many startup founders and entrepreneurs get deep into the startup funding process and find they have to learn about legal terms and financing structures on the fly. What are SAFE notes, convertible notes, and priced rounds, and how to convertible notes vs SAFE notes compare? How does fundraising dilution works across multiple rounds? What are options pools, liquidity preference, board seats, protective provisions and other key financing terms? I'll cover all the key terms you need to know before you head into startup funding
0:00 Introduction
0:37 Ways to raise money from venture capitalists
0:51 Equity priced rounds
1:19 Price and valuation
2:20 Options pool
2:49 Warrants
3:08 Liquidity preference
4:12 Board seats
4:50 Protective provisions
5:03 Founder vesting
6:24 Major investor rights
8:22 SAFE notes
10:09 Dilution with SAFE notes converting into priced round
11:34 Convertible notes
See my tips for how to pitch your startup, including creating a compelling pitch deck and running an effective pitch meeting: • The Ultimate Guide to ...

[@FreelanceMVP]

Excellent video Wayne - you really nailed it in covering the spectrum of financing. Great job! Looking forward to more videos on the channel.

[@nogatekeepers]

Thanks so much Evan! Looking forward to more of your videos as well!

[@youngyoungj]

Fantastic video - super clear and informative.

[@nogatekeepers]

Thank you!!

[@wvfmSuTM]

Thank you, Wayne! Definitely useful. I think you might try to slow it down a bit. There is A LOT of information to process in this short film. The graphics are very well done, but almost invisible since everything goes so fast. I wish there was a 10-15 film for every topic you mentioned int his one. 🤗

[@nogatekeepers]

Thanks David! I think you're right, I'll try to slow it down a bit in the future. Appreciate the feedback!

[@amanbasanti866]

Amazing video, I had no idea about half of these terms. I will need to watch it again to actually understand it. Thanks again.

[@nogatekeepers]

Thanks Aman! Glad it was helpful!

[@martabulaich]

Superb explanation on how startup funding works.

[@nogatekeepers]

Thanks Marta!

[@avivshalgi4188]

Loved it Wayne, super helpful! Thanks for sharing!

[@nogatekeepers]

Thank you Aviv, glad it was helpful!

[@tenbagger]

This is one of the most insightful and content-packed videos I've seen on the topic and the editing is superb. Covered much of what I wish I knew before starting out in venture. Subbed / will be back for more

[@nogatekeepers]

Thank you for the kind note! Glad you found it helpful, I'll be posting more content each week

[@cappuccinopapi3038]

Thank you so much, I've been the first hire at a VC funded startup for a few months and I didn't know anything about the lingo

[@nogatekeepers]

Glad I could help!

[@shereenkhanuja5863]

This is super helpful. Love the breakdowns and visuals!

[@nogatekeepers]

Thank you!!

[@seanight8]

This is amazingly clear👍🏼

[@nogatekeepers]

Thanks, glad to hear!

[@jonathanyu5823]

Excellent briefing. Definitely subscribe for more about it.

[@nogatekeepers]

Thanks! Glad you found it useful!

[@devonjessamy6339]

Excellent video. Brought much needed clarity.

[@nogatekeepers]

Thanks Devon! Really glad it helped.

[@sephtube]

I really love your clarity in explaining all of these, especially for non-US founders like me who are about to enter and launch a product in the US. Saved and subscribed.

[@nogatekeepers]

Thanks so much for that note, and glad to hear it was helpful! Excited to share more soon

[@sephtube]

​@@nogatekeepers You are welcome, Wayne. Also, if it's not too much to ask, can I connect with you and perhaps get your feedback in private about our upcoming product?

[@nogatekeepers]

Sure - want to DM me? If you’re on twitter I’m @waynejwhu

[@JoseGonzalez-wl8pw]

Thank you. Kindly keep posted

[@nogatekeepers]

Thank you Jose! I will try!

[@stupendas101]

Love the fast pace and right to the point info

[@nogatekeepers]

Thanks! Glad you liked it!

[@kartikbais6121]

Appreciate the effort you put to make it understandable ! 👍

[@nogatekeepers]

Thanks so much for the comment Kartik!

[@antoniomirizzi1250]

Solid first video... cough cough* subscribe.

[@nogatekeepers]

Thanks Tony!

[@jyotisood1177]

Super helpful! Are you going to post more content soon??

[@nogatekeepers]

Yep :)

[@jsc1227]

This was very well described we are very grateful for this clear analysis

[@nogatekeepers]

Thank you for the kind note!

[@saikeerthikumarpoolla1917]

Wow! Seriously impressive content Wayne. Keep it up. Would love to hear your book suggestions or reading material to dig deeper into this topic. Secrets of sandhill road and so on?

[@nogatekeepers]

Thank you!! Venture Deals from Brad Feld is the gold standard here

[@Lytekode]

Very good info ! Thnx

[@nogatekeepers]

Thank you! Glad you found it helpful!

[@kerlened.9115]

Crystal Clear explanation, Wayne! Thank you so much for this investment funding masterclass. I look forward to learning more! #subscribed 🌸🌟

[@nogatekeepers]

Thanks you Kerlene!! Excited to share more!

[@bolaji_]

love it, very simple

[@nogatekeepers]

Thank you!!

[@drinkroobru]

thanks bro

[@nogatekeepers]

for sure!

[@jlow14]

Thank you Wayne! So well explained! I’m raising for a four wall business (will be a chain of fitness clubs) but I’m having a hard time figuring out if I can use a SAFE for it. One question I have is if you can use both a SAFE and a Convertible note with pro rata rights in the same round?

[@nogatekeepers]

Thanks you Jessica! Technically you can, but it's generally much better to keep investors who are putting in money around the same time doing so on the exact same terms - not just to keep your legal bill lower but also to keep your investors on the same footing, among other reasons. If one investor is much bigger in their $ amount and asking for information rights or pro rata, that is fair, and can still be done with a pro rata or major investor rights side letter on top of the SAFE, which is what I recommend.

[@saikeerthikumarpoolla1917]

Wayne a little advice, in the thumbnail, swap ur pic to the right and the text to the left side coz the video length will be displayed at right side corner. It might be a minor change but might result in increased clickrate, we never know!! 😂

[@nogatekeepers]

Appreciate that!!

[@iskandera1783]

Great work! Do you think VCs funds this year will be more conservative in their dealings with start up??

[@nogatekeepers]

Thanks! Absolutely they will - I actually made a video on this: Tech Crash: How Much Worse Will It Get in 2023? kzbin.info/www/bejne/oITVfqyAoNuarZo

[@rickykynd]

Hey Wayne! At the 6:00 min mark, you mentioned single vs double triggered acceleration where two things generally happen; (a) the sale of the company or (b) the departure of the founder. In a single acceleration acceleration, which is more likely to happen (a) or (b), either, or is there something else?

[@nogatekeepers]

Hey Ricky! I'm actually not 100% sure what the data would suggest but in my experience it's more common for one of the founders (not necessarily the founder/CEO) to leave a company.

[@rickykynd]

@@nogatekeepers Ah, I see. Thanks for that!

[@nogatekeepers]

@@rickykynd Thanks for the question Ricky!

[@unknownuser4645]

can you make a video on how vc's conduct due dilligence step by step.Thanks

[@nogatekeepers]

Yes I can! Stay tuned in the next couple of weeks or so

[@waynonsano]

Made the video on VC due diligence! Check it out, titled ‘How to pick the next Google’

[@RR-et6zp]

how do you get pre money valuation? doesn't make sense ,you can only look back (accounting)

[@nogatekeepers]

Take the post money valuation and subtract the amount invested (eg a 2m seed)

[@RR-et6zp]

yeah but HOW do you get the valuation? the initial one, especially for random apps, not SaaS

[@nogatekeepers]

Yeah it’s super confusing. Two answers, 1/ market sets the price. If you have lots of VCs bidding on a deal, they will create auction dynamics and increase the price. 2/ I think the more rational way to do it is figure out what capital you need to get to the next financeabld milestone eg series A 1m in revenue. Then take standard amount of dilution for that round, eg 10-20 percent. So if you need a 2m seed, valuation is typically 10-20 post

[@RR-et6zp]

@@nogatekeepers Yeah thx for answering this makes more sense. Let's say you're building a marketplace app with newer features, would you see the cost of the whole thing in exchange for 10-20% ? which sets the initial value. What if you need more than $1 million to get started ? Your response makes a lot more sense yeah. Also, do you think you could do a video that is more in detail of the LAL CAC metrics? I think I misspelled lol. I've seen a lot are valued on their growth rate formula..? also how much do cofounders get first year salary etc? these kind of things haha. Your videos are already really helpful for people who wanna do start ups so I'm just asking for more haha

[@RserBot2]

You gotta dumb down the explanation, shooting it so quick like a bullet. Hard to grasp.. especially the SAFE note bit where you did not explain why the investor would get 10m shares? I can only guess it was because they had pro rata rights to maintain the ownership. And when can you decide between pro rata and discount? No explanation but shooting and feeling good yourself

[@nogatekeepers]

Thanks for the comment - point taken! Will try to slow down in the future. I’m the meantime, maybe watching in 75 percent speed will help? Not sure I follow your question, but if SAFE note holders invest at a cap, they get a lower (better) price than investors who come in later at a higher price. Which makes sense because the SAFE note investors got in earlier