Rolling SAFEs cause founders to accidentally over-dilute their equity
Scott Kupor · How to Raise Money from a Venture Investor · Jun 14, 2019 · at 11:24
Scott Cooper of Andreessen Horowitz explains how informal, unpriced rolling closes lead founders to miscalculate their dilution prior to raising a Series A round.
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“In some respects, because number one, it's so easy to raise money on a safe, you often find people do what are called rolling closes, which is, you know, usually on a priced round, we're like, this is your date, right? Get your money in by June 30th or else you're out of this deal, right? And the safes, you know, have this very nice convention, which is, you know, I can close one on June 30th and then I can kind of do one on July 31st. I can kind of keep doing it. And that's very good and convenient. The problem is never along that way does the entrepreneur see the actual capitalization table of What is it going to look like when all those safes convert into equity? And so several times we've had entrepreneurs come in here and, you know, it's kind of sticker shock when we give them an offer on the A round and then we actually kind of build the capitalization table out of that and they realize that, you know, kind of they inadvertently sold more of the company than they had realized based upon this kind of concept of these rolling closes up notes.”
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