Ways to raise: SAFEs, notes, priced rounds, debt and grants
SAFEs, convertible notes, priced rounds, venture debt, revenue-based financing, grants and friends-and-family money: what each costs and when each fits.
A startup can sell a piece of itself now (a priced round), sell a right to a piece later (a SAFE, a convertible note), borrow (venture debt, revenue-based financing), or be paid to do research (SBIR). The choice decides who owns the company, who can make it repay, and what the books carry until the next round.
Dilutive money costs ownership; debt costs cash on a schedule; a SAFE defers the price but not the dilution.
SAFE
- Good at
One standard document, no interest or maturity
- Watch for
Dilution arrives at the next round
- Best for
- Pre-seed and seed, many investors closing at different times
Convertible note
- Good at
Familiar; creditor priority
- Watch for
Interest and a maturity date
- Best for
- Bridges, and investors who want creditor standing
Priced round
- Good at
Sets a real price; converts the SAFEs
- Watch for
Cost, time and investor control rights
- Best for
- A lead investor ready to set a price
Venture debt
- Good at
Little dilution
- Watch for
Must be repaid
- Best for
- Extending runway after a round
Revenue-based financing
- Good at
No dilution; payments move with revenue
- Watch for
Expensive multiple if revenue grows fast
- Best for
- Steady revenue, no wish to sell equity
SBIR
- Good at
No dilution, no repayment
- Watch for
Slow; topic-bound
- Best for
- Research an agency wants done
- Founders$60,000 for 8,000,000 shares
- This lessonSAFE$250,000, November 2, 2026
- Series Seed$2,000,000 at $8,000,000 pre
- Venture debtOptional, after the round
In this lesson: the SAFE (with its math and side letters), the convertible note, the priced round, venture debt, revenue-based financing, SBIR grants, and friends-and-family money.
Pages in this lesson
7 pages go deeper, about 41 minutes in all. Read them in order, or open the one you need.
- The SAFEWhat is a SAFE and how does it work?
- The convertible noteWhat is a convertible note, and how is it different from a SAFE?
- The priced roundWhat is a priced round, and what is a Series Seed?
- Venture debtWhat is venture debt and when should a startup use it?
- Revenue-based financingWhat is revenue-based financing?
- SBIR and non-dilutive grantsWhat are SBIR grants, and can a startup use them instead of raising?
- Friends and family moneyCan I raise money from friends and family, and what are the rules?
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- US GAAP
- ASC 480-10 — Distinguishing Liabilities from Equity (opens in a new tab)Why a SAFE usually sits with the liabilities until it convertsFree after registration
- Background reading — not an authority
- Y Combinator, SAFE financing documents (opens in a new tab)The post-money SAFE: cap only, discount only, or MFNFree to read
- NVCA Model Legal Documents (opens in a new tab)The model certificate of incorporation, stock purchase, investors' rights, voting and ROFR/co-sale agreementsFree to read
- Wikipedia, “Venture capital financing” (opens in a new tab)Venture rounds — backgroundFree to read
The full map is in US GAAP, and where these rules come from.
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- SAFECash from an investor in exchange for a right to shares in a future priced round, usually at a valuation cap or a discount. Not debt and not yet stock; because a SAFE can require cash on a change of control, it is often classified as a liability under ASC 480 and remeasured at fair value — the terms decide
- Convertible noteDebt that converts into stock at a future financing, usually at a discount or a cap, accruing interest until it does — a liability until conversion, with any embedded conversion feature assessed for separate accounting
- Priced roundA financing in which investors buy a new series of preferred stock at a stated price per share, on a negotiated pre-money valuation — as opposed to a SAFE or note, which defers the price. Converting SAFEs and notes convert at its close
- Venture debtA loan to a venture-backed company, usually alongside or just after an equity round, often with warrants for the lender. It extends runway with less dilution than equity, and must be repaid whatever happensConvention
- Revenue-based financingCapital repaid as a fixed percentage of ongoing revenue until a set multiple of the amount advanced is returned. Non-dilutive; costly if revenue grows fast, slow to repay if it doesn'tConvention
- Small Business Innovation ResearchFederal research funding that agencies award to US small businesses in phases, with no equity taken — non-dilutive capital for technical work an agency wants done
In the founder glossary
This lesson’s ideas, explained for the founder running the company. Each has an entry in the founder glossary.