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The cost of priced rounds is often brought up as a reason to choose a SAFE. Why are priced rounds so expensive in the first place?
by thefahim 9y ago
The cost of priced rounds is often brought up as a reason to choose a SAFE. Why are priced rounds so expensive in the first place?
- SandersAK 9y agoPriced equity means you're actually transferring ownership of shares. It's going to involve a lot of diligence and negotiation around rights, etc. The short answer: lawyer time.
- taylorwc 9y agoShort answer: attorneys. When you do a priced round, you have to go in and change many aspects of a company's legal structure. For example, the documents drafted in a priced round may include amendments to the charter, a voting agreement, a stock purchase agreement, a right of first refusal agreement, a shareholder agreement. Drafting the legal docs for a convertible note or SAFE is less intensive and time consuming.
- jasonlaramburu 9y agoA couple other things: the level of due diligence is typically higher in a priced round, which eats up lawyer time. Also it's customary (for reasons no one can clearly articulate) that the investor(s) legal fees are paid by the startup in addition to its own.
- thefahim 9y agoAmendments, right of refusal, etc do not happen in SAFE rounds. Why do we assume they should happen in a priced round? Seems like all these documents have been generally standardized so the cost should be the same barring investors asking for extra rights in a Series A.
- staticautomatic 9y agoPeople seem to forget that you can "price the round" without selling priced shares and incurring all the associated headache/expense if you just treat your convertible note like the warrant that it is and have it convert at a predetermined price. I've done it several times myself.
- justin 9y agoAt Atrium LTS we are working on ways to reduce the cost of priced rounds! Please get in touch if you'd like to learn more.
- oyeanuj 9y agoWe'd love to! What's the best way to get in touch? (My email is in my profile)