Questions about SAFE Notes for a Startup
Quick VC questions for you banker folks - I'm building a startup and was told I need to leave my job and go start raising capital for my business. It's been a while since I've done anything VC-finance related so just wondering if someone can help me out here.
We're a pre-revenue company, and I was told we should go aim for a seed stage raise with a $10MM-$20MM valuation cap.
- Does this give us a theoretical company valuation right now even if we don't have any customers/visitors to our tech platform yet?
- When an investor provides us with SAFE Financing, what happens if we never go on to raise another financing? Since the investor's only "asset" is the right to invest at the lower of the valuation cap or the pre-money valuation in the subsequent round, what happens if the founding team chooses not to have a subsequent financing round and just fund the business from ongoing cashflows permanently?
- If you start fundraising at the seed stage - are you basically pigeonholed to have to continue to keep doing equity raises until as the founder you basically have some stupid small amount of equity left like 20%?
- Do you all buy into this "raise > invest in operations to improve sales / ignore bottom line > raise > repeat" cycle in Silicon Valley? While your ownership % will go down drastically, people keep telling me that the value of my shares will rise - but isn't this only based on a super bull tech market? At some point the real value has to be the claim to the operating cash flows am I right?
- Should I focus on growing slowly using only my own resources (savings from my paycheques at work) to grow my startup and keep my 50% equity or should I sell my soul to Silicon Valley and go raise money on my first startup and go down that road?