Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / Why Startups Are Raising via Rolling SAFEs
Transcript
- Lucas: Palantir down four percent in five days, Coinbase down nearly six. There's a chill in growth stocks this July, and if you're a founder trying to raise a seed round right now, that chill finds its way into investor conversations. Luna: Yeah, you can feel it. I talked to a fintech founder last week whose lead investor pulled out at the last minute, citing 'market conditions.' He was stuck halfway through a priced round. Lucas: That is exactly the scenario where rolling SAFEs have become the workaround. Not a new idea—Y Combinator introduced the SAFE back in 2013—but the rolling version, where you close investors one by one at the same valuation cap over a period of time, has really taken off in the last two years. Luna: Right. Instead of waiting to hit a minimum round size with a lead, you just keep a SAFE open and let investors come in as they're ready. Lucas: Exactly. So let's walk through a concrete example. Say you're a SaaS startup, you've got some early traction—maybe fifty thousand in monthly recurring revenue. You want to raise five hundred thousand dollars. In a traditional priced round, you'd set a valuation, negotiate terms with a lead, close everyone at once. That can take three to six months. Luna: And if the market dips in the middle, the lead might reprice or walk. Lucas: Right. With a rolling SAFE, you pick a valuation cap—let's say ten million dollars—and a discount rate, maybe twenty percent. You open the SAFE, and you can accept money from accredited investors whenever they want, over a period of, say, six months. Each investor gets the same cap and discount. Luna: So the first investor in gets the same terms as the last. That's actually pretty fair if you're not trying to reward early commitment with a lower cap. Lucas: Exactly. And the big advantage is speed. The legal work is minimal—you're using a standard SAFE template with just a few custom fields. No need for a full priced-round negotiation. Some founders close their first check within a week. Luna: But there's a catch, right? The cap table gets messy if you keep it open too long. Lucas: That's the trade-off. When you eventually do a priced round, all those SAFEs convert at once, and you might end up with dozens of small noteholders. Some later-stage investors don't love that. They prefer a clean cap table with a few large investors. So rolling SAFEs work best when you plan to do a full priced round within twelve to eighteen months. Luna: And there's also the question of signaling. If investors see a SAFE that's been open for eight months and still hasn't converted, they might wonder why. Lucas: That's a real risk. Especially if you're raising from smart money who track momentum. I've seen founders cap the rolling period at six months explicitly in the SAFE—written right in—so that it's clear the window is finite. Luna: Yeah, that's a good practice. And I think the broader point is that rolling SAFEs are a tool for a specific environment. They thrive when there's uncertainty, like now, with growth stocks wobbling. Lucas: Absolutely. Look at the numbers this week. Palantir down four percent in five days, Coinbase down nearly six. Those are bellwethers for the tech and crypto sentiment. If you're a founder trying to raise, that mood trickles down to your round. Rolling SAFEs let you decouple from that timing risk. Luna: But they're not a silver bullet. If you have strong traction and a hot sector, you might still get better terms from a priced round. Lucas: For sure. I talked to a B2B SaaS founder who raised three million on a SAFE with a fifteen million cap, and then converted to a Series A at a thirty million valuation. He said the SAFE saved him about fifty thousand in legal fees and let him get to product-market fit faster. Luna: Fifty thousand—that's real money at that stage. Lucas: It is. And that's the core argument: speed and lower friction. But you have to be disciplined. You can't just leave it open forever. And you need to keep investors updated regularly—monthly updates, even if there's no news—so they don't get nervous. Luna: Speaking of keeping things going, a quick honest thing—a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many episodes possible. No ads, no sponsors, just listener support. Lucas: Yeah, it's a small group, but it makes a big difference. If these conversations are useful for what you're building or running, that's the way to keep them ad-free. No pressure, just the reality. Luna: Alright, back to rolling SAFEs. One thing I've been wondering: how do you handle the valuation cap if the market moves a lot during the rolling period? Lucas: Great question. Some founders set the cap a bit higher than they'd expect in a flat market, to account for potential upside if conditions improve. Others use a tiered cap that increases over time—say, ten million for the first three months, twelve for the next three. That rewards early investors. Luna: That's clever. It also gives later investors a signal that they're paying a premium for waiting. Lucas: Exactly. But it adds complexity. The beauty of a simple rolling SAFE is that everyone gets the same deal. Once you introduce tiers, you're basically doing a mini-priced round with multiple valuations. Luna: So for a first-time founder, what's your advice? Stick with a flat cap for a set period. Lucas: I'd say yes, unless you have strong negotiating leverage. And always, always get a lawyer to review the template. SAFEs are standardized but not trivial. I've seen founders accidentally include a most favored nation clause that gave later investors better terms retroactively. That can blow up. Luna: Oof. Yeah, that's a landmine. So rolling SAFEs are a tool, not a strategy. You still need a plan for the priced round that follows. Lucas: Exactly. Think of it as a bridge, not a destination. And given the market this July—with growth stocks under pressure—it's a bridge more founders are walking across.