Securing funding is a milestone, but the vehicle you use to accept that money is just as important as the capital itself.
Many founders focus entirely on the valuation number, ignoring the legal structure of the deal. This is a mistake. The terms you agree to today dictate your control, your debt liability, and your future dilution.
Are you selling a piece of the company now, or promising it for later? Are you taking on debt, or just an agreement? Here is the breakdown of the three primary funding instruments you will encounter: The Priced Round, The SAFE, and The Convertible Note.
1. The SAFE (Simple Agreement for Future Equity)
The Verdict: The Modern Standard for Pre-Seed.
Invented by Y Combinator, the SAFE was designed to fix the complexity of early-stage fundraising. It is essentially a contract for future equity in exchange for cash now, but without the baggage of debt.
- Is it Debt? No. There is no interest rate and no maturity date.
- Valuation Set? No, not immediately. It typically uses a “Valuation Cap” to set a maximum price for the investor when the shares eventually convert.
- Why Use It: It is fast, legally cheap to execute, and generally founder-friendly.
2. The Convertible Note (Debt)
The Verdict: The Old Guard (Handle with Care).
Before the SAFE, the Convertible Note was the standard for early rounds. While still used, it carries a distinct risk profile because, technically, it is a loan.
- Is it Debt? Yes. It carries an interest rate and, crucially, a Maturity Date.
- The Risk: If you do not raise a subsequent round of funding before the maturity date, the investor could technically demand repayment.
- Why Use It: Some traditional investors prefer the legal protections of debt, but you must watch the maturity date closely.
3. The Priced Round (Equity)
The Verdict: The “Official” VC Structure.
This is the traditional Venture Capital round (Series A and beyond). Unlike the other two, this is a direct sale of company shares for cash immediately.
- Valuation Set? Yes, immediately. There is no “kicking the can down the road”; the company has a firm price per share today.
- Key Terms: This involves complex negotiations over Pre-Money Valuation, Option Pools, and Board Seats.
- Why Use It: It provides clear structure and is necessary for larger checks, but it is complex, slow, and expensive legally. It is rarely used for a “friends and family” or first round.
The Bottom Line: Choose the Right Tool
You cannot just pick the one that sounds nicest; you must pick the one that matches your stage.
- SAFEs are for Speed. If you are in MVP Development or Pre-Seed, this is likely your best bet.
- Convertible Notes are Debt. They function like a SAFE but come with a deadline (maturity date) that you must respect.
- Priced Rounds are for Traction. Once you have established revenue and are ready to scale operations with Enterprise Software Development, you move to priced equity.
Scale with the Right Partner
Once you have the funding, you need the product. Whether you are deploying capital into a new MVP or scaling an existing platform, Bee Techy provides the engineering talent to turn investment into value.
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