Don’t Use the Wrong Start Up Agreement

You’ve decided to go for that start-up you’ve been dreaming of. But you want to do things properly, too.

The right legal agreement is essential. If you’re just starting out and collecting capital from family and friends, then a SAFE Agreement should be just fine. No need to negotiate complex terms.

But what if you’ve raised, say, between 100k and 200k? In that case, a convertible note is best. And finally, let’s say you’ve got big checks coming in …. at least a million dollars in capital. Now you’ve entered what’s called the priced equity round. This means you’re ready to sell shares in your company.

Congratulations! But now you need a really good lawyer. Visit carbonlg.com or call 323.543.4453 to learn more. “With every startup, you have to think about raising money, and when it comes to raising money, it can be complicated as to which type of agreement is right and when.

There’s essentially three main types of agreements you want to think about. The first one is the SAFE, the second one is the convertible note, and the third one is the priced equity round, where you’re actually selling shares.

The safe note’s most commonly used at the early stages of a startup. It helps you get that first money in, without having to deal with complex terms. So now let’s say you’ve raised $100,000, $200,000 through a SAFE agreement, then you’ll usually be talking to angel investors or venture capitalist and be discussing a convertible note. And if you’re one of the lucky startups that have made it through the safe and convertible note round, now you’re ready to actually sell shares in your company.

This usually means that you’re raising one to three to five million dollars, and at this point someone’s ready to come to you with a big check and now you’re ready to actually put a value in your company and sell shares in that company.

The three rounds you want to consider and think about when raising funds are, the SAFE round, which is early-stage, the convertible note, which kind of mid-stage, and then the priced round, which is usually series A and beyond.