99 Startups Monthly Newsletter - November 2024
According to Carta, Startups are taking in more capital through convertible instruments before they raise their first priced equity round:
But what are these convertible instruments? Usually, startups use SAFEs or Convertible Notes to raise their first rounds. Let’s break them down:
SAFE:
A Simple Agreement for Future Equity (SAFE) is a contract that grants investors the right to receive equity in the company at a future date, usually during the next financing round.
It converts into equity when a triggering event occurs.
It does not require the company to repay the initial investment, nor does it bear any interest rate or have a maturity date.
Convertible Note:
Is a form of short-term debt with an interest rate issued by the investor to the startup that is either paid back at the maturity date of the contract or converted into equity at the pre-specified triggered events.
Advantages of using a SAFE or Convertible Note at early stages:
They both help founders raise money quickly without setting a valuation, giving up control, or paying high legal fees.
Ideal for quick deals.
Founders can arrange rounds more flexibly.
Founders can defer consuming negotiations like valuation or board seats until their first priced round.
But why are founders deferring their first priced rounds more over time?
This can be very subjective and due to a combination of various factors, but overall can be attributed to:
The lack of IPOs in the past few years.
The time between rounds lengthening for many startups, due to the funding downturn the industry has faced.
Complexities of raising a priced round in early stages when founders prefer to focus on other things such as Product Market Fit, reaching Profitability, etc.
News about our portfolio companies:
Universal Music Group (UMG) enters into a strategic collaboration with ethical AI music company, Klay.
Great companies we have recently reviewed:
Boxful: E-commerce tech infrastructure for SMBs in Central America.
Veriph: White-label software that embeds into web and mobile apps to help companies verify their users’ identities using phone numbers during sign-up, KYC, or MFA.
Recommendations of the month:
Super Founders: What Data Reveals About Billion-Dollar Startups - Ali Tamaseb - Ali, who had one of the largest startups’ datasets, tells us what he sees that differentiates a good founding team versus the rest.
Lululemon Athletica: Chip Wilson - How I Built This with Guy Raz:
Building a Startup that Will Last - Hemant Taneja and Ken Chenault.