Fundraising via SAFEs for climate entrepreneurs

SAFEs are a widely adopted and easy way to get equity dollars in the door with minimal legal (and operational) expense. But if you don’t have a clear understanding of the mechanics, you can set yourself up for a huge mess down the line.

Elke Trilla is a corporate attorney at Wilson Sonsini and focuses on early stage climate and tech companies. In the first of four in a new series together with the team at WSGR, we sat down with her to discuss the ins and outs of raising a SAFE round.

Why raise via a SAFE? 

When it’s too early for a valuation

In the earliest days of building a company, deciding what your company is worth, let alone convincing a third party to agree on that number, can be an exercise in imagination. There's simply not enough information for either side to land on a valuation with confidence. A SAFE lets you raise money now and defer the valuation determination  until the founding team has had an opportunity to move from idea to pilot program, initial product, and first customers. 

It’s more appealing to VCs

Valuation determinations require significant time and diligence on the VC's part. They need to be able to justify the valuation internally to their investment committees and their limited partners, and without the underlying data, that task becomes incredibly difficult. A SAFE is designed to defer that valuation question entirely and for some investors, removing that hurdle, makes it easier to get to “yes”.  

It lowers legal costs 

Compared to a priced round, the documentation for a SAFE is straightforward and most investors and companies are comfortable and fluent in the YC form of SAFE. Recall, because a SAFE doesn't actually issue shares at signing, there's no need to determine ownership percentages or run complex cap table calculations at the outset. That simplicity translates directly to cost: a priced round typically runs 3x-5x more in legal fees than a standard SAFE round. 

However, watch out for bolt-ons. Side letters and bespoke amendments will require time with your legal team, so you'll need to decide whether the check size justifies the legal cost to accommodate such customization. How significant is the check size? How much value does this particular investor bring beyond capital? The answers will determine whether accepting these additional terms is worth the additional complexity and cost.

It gets you to a close faster

The beauty of the SAFE is that limited negotiations and documentation stand between the "yes" from an investor and the wires hitting the company's account. Generally, founders and investors are negotiating only 2–3 terms (but remember to watch for side letters!). This simplicity allows for a shorter interim period than in a priced round; and for founders, that speed has real value. It keeps momentum going and reduces the window during which a deal can fall apart. 

You can do a rolling close 

With a SAFE, you can close with each investor individually as commitments are finalized — there's no need to wait for the full round to come together before anyone's check clears. A priced round, by contrast, typically requires coordinated closing events: a first close, a second close, and so on. The rolling close keeps capital flowing in as the round builds, and gives founders the flexibility to bring in new investors over time without reopening a formal process. 

The downside of SAFEs

The tradeoff of raising via SAFEs, ironically, is that the company is not determining valuation at the time of the SAFE purchase, and therefore the cumulative dilution can be difficult to model in advance. Depending on the size and duration of your SAFE round(s), each investor may negotiate a different valuation cap or discount rate. Make sure you're tracking each instrument carefully and running the math all the way through to conversion. Founders don't want to be caught off guard at the Series A by how much of the company has already been committed away.  

SAFEs vs convertible notes

Unlike a SAFE, a convertible note is intended to function along the lines of a debt instrument with interest, a maturity date, and, depending on the deal, a stack of documentation to match. Where a SAFE might run a few pages, a convertible note can run anywhere from 5 to 30 pages, and the negotiation and legal spend reflect that.

The more significant operational consideration is the maturity date. Upon maturity (generally 2-3 years) investors can have the right to demand repayment of principal plus accrued interest. At that point, the company may or may not have the cash on hand to satisfy the repayment, which means founders need to track maturity dates carefully and be prepared to renegotiate before they arrive.

That said, convertible notes can be a genuinely useful instrument if deployed strategically. If you have a clear path to revenue in sight, you may never need to convert the note into equity at all — making it relatively inexpensive debt that leaves your cap table untouched.

Pre- versus post-money

The terms "pre-money" and "post-money" refer to when a SAFE's valuation cap is calculated relative to the capital being raised, and the distinction has meaningful consequences for how dilution plays out at the time of conversion (the priced round).

Pre-money SAFEs calculate dilution before the new capital is counted, which means  total dilution at conversion depends entirely on how many SAFEs the company has sold and on what terms. Until a priced round is initiated, founders are largely in the dark about their true ownership picture as the math shifts with every new instrument added to the stack.

Post-money SAFEs lock in each investor's ownership percentage at the time of signing based on the valuation number in the document. Because post-money instruments don't dilute one another, each investor's stake at conversion is fixed regardless of how many additional SAFEs are subsequently closed. This gives both founders and investors a clear, real-time view of the cap table as the round progresses. 

In the market, the majority of SAFEs are either discount only SAFEs or post-money SAFEs. 

Valuation caps and discounts 

As the market matures, more and more companies are raising on discount-only SAFEs. A discount-only SAFE entitles the investor to purchase equity at your next priced round at a reduced price, without requiring either side to agree on a valuation at the time of the purchase. This lets founders sidestep the valuation conversation entirely and investors will often accept these terms.

Some investors will push for a discount plus a valuation cap. Together, these two features work in the investor's favor at conversion: the discount entitles them to purchase equity at a reduced price relative to new investors in the priced round, while the cap ensures that no matter how high the company's valuation climbs before conversion, their effective purchase price is locked in. Most SAFEs apply whichever of the two is more favorable to the investor at the time of conversion (i.e. the investor gets the benefit of both protections without having to choose between them).

For investors, this structure is attractive precisely because it rewards early risk. The earlier they wrote the check, the argument goes, the more uncertainty they absorbed. For founders, accepting both terms means the cost of that early capital is higher than it may have appeared at signing, which is why understanding the conversion math before agreeing to terms is essential.

Modifications to standard SAFE terms

As a general principle, founders should try to keep SAFE terms standard and uniform across the round. Deviation creates complexity and complexity has downstream costs.

The threshold question is “who is asking?”. Modifications should come with a premium. The only investor(s) who should have any leverage to request modifications is the one providing commensurate value, whether that's a meaningfully larger check, material operational support, or significant reputational value. 

If you're running a party round, meaning no single investor is contributing more than a threshold amount and there is no clear lead, the founder can reasonably take the position that special or preferential rights are not being offered at this time. 

Critically, founders should be careful not to volunteer concessions before an investor even raises them. Any preferential rights you grant today will be visible to every future investor (and they will ask you to match them, and then some).

Beyond the standard SAFE terms, investors may ask for additional rights via a side letter, each of which should be considered in the context of the size of the round, investor base etc. :

• Pro rata rights: The right to participate in future financing rounds, up to the investor's pro rata share of the round, so they can maintain their ownership percentage as the company raises additional capital. Particularly valued by investors who intend to be active participants across multiple rounds.
• Information rights: Contractual entitlements to receive ongoing financial and operational reporting from the company — typically periodic financial statements, capitalization table updates, or other agreed metrics. The scope varies widely depending on what is negotiated.
• Board observer rights: The right to attend board meetings in a non-voting capacity. Unlike a board seat, an observer has no fiduciary duties and no vote, but does have visibility into board-level deliberations, which is why founders should think carefully about who is in the room and on what terms.
• Most favored nation (MFN) clauses: A provision entitling the investor to the benefit of any more favorable terms granted to a subsequent SAFE investor in the same round. If the company later closes a SAFE on better terms (i.e.a higher discount or a lower cap), an MFN holder is automatically entitled to those improved terms as well.

In all cases, sit down with your attorney before agreeing to anything. The line between an easy concession and a costly one is not always obvious at the moment.

SAFE stacking

The more SAFEs a company closes on different terms, the more complex the legal work becomes at the priced round. Depending on whether each instrument is post-money, pre-money, or discount-only — and whether any SAFEs carry bespoke amendments or side letter provisions — each SAFE converts on its own terms, requiring significant work from the legal team to produce an accurate proforma. Those variations compound one another in ways that are difficult to anticipate without modeling the full picture in advance. 

Cap table modeling tools exist precisely for this purpose, and founders should be using them throughout the raise, not just at the moment a priced round is initiated. There is no excuse for arriving at a Series A without a clear view of how the cap table will look on the other side of conversion. 

When to stop raising SAFEs

There is no universal rule for when a company should stop raising on SAFEs. That said, once outstanding SAFEs represent 20–25% of the cap table, it's worth pausing to ask what the raise is meant to accomplish and what milestone the company is realistically trying to hit. At that level of dilution, the math of a priced round may start to make more sense.

The moment an investor signals they are ready to lead a priced round, take that conversation seriously. Just go in with a clear understanding of the work and legal cost involved, and make sure the timing and capital raised justify both.

Going back to SAFEs

Completing a priced round doesn't foreclose the option of returning to SAFEs for subsequent bridge financing needs. If a company requires quick access to capital  and wants to avoid the legal cost and complexity of setting a new valuation, a post-round SAFE can be a practical bridge. 

Elke Trilla is a corporate attorney in the Boston office of Wilson Sonsini Goodrich & Rosati, where she advises high-growth technology companies on formation, venture financings, and mergers and acquisitions. Her practice has a particular depth in capital-intensive climate and energy businesses, including structuring blended capital stacks that integrate venture equity with non-dilutive funding sources. Elke is recognized for her work with underrepresented and emerging founders navigating early-stage capital formation, and has been named to the Boston Business Journal's 40 Under 40, Boston's 50 Most Influential Attorneys of Color, and the Hispanic National Bar Association's Top 40 Lawyers Under 40, among other honors.