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Anthony Rose (00.00)
Hello, I’m Anthony, founder at SeedLegals, and I’m going to show you how SeedLegals is the fastest, the best, the most efficient and the least dangerous way to create a SAFE.
Now we all know you can download SAFEs on the internet. The problem is most people don’t understand how that YC post-money cap dilution works. And also people just start handing out SAFEs and fill in the blanks, but they don’t realize you also need board consent and you need to convert them at the right arithmetic and so on afterwards. And if you don’t have things set up correctly when it comes to do due diligence for your next funding round, it’s a bit of a mess. So, SeedLegals is a much safer, much better way to do this.
Let me show you how it works. So you log into SeedLegals and you go to your raise page. Now you can do SAFEs and you can also do a Priced Round. Amazingly, we have automated the Priced Round in the US. But, for now we’re just going to talk about SAFEs, and we’ll do another video for the priced Round.
So we’re going to say we’re going to create a SAFE and we call it a SeedSAFE. A SeedSAFE, you can configure it to be exactly the same as a YC SAFE, or you can mix and match terms, which you can’t do with a YC SAFE. And I’ll show you in a moment. So, I’m going to start by saying I’m going to create a SeedSAFE group.
What is the SeedSAFE group? Well, when you want to enter into a contract to allocate shares, or issue shares, you need board consent to do that. And so rather than trying to make a SAFE and doing a board meeting, a board meeting and a SAFE, which is going to get tiresome, you can create a group. And here we’re going to say we’re going to raise up to million dollars worth of SAFEs and get consents for all of that upfront.
Great. So, the next thing is, I have to do my board meeting. Good news. This is super simple. I’m just going to say what type of SAFEs is the board going to give us permission to do. And we’re going to say we’re going to do post-money cap SAFEs with a cap of 5 million dollars minimum. We’re not going to do any discounts.
And, we can also say by the way, if there isn’t a funding round by a certain date they will convert anyway, which is not that common in the US, it’s common for convertible notes, but not for SAFEs. But if you want to do that, we’ve got it sorted for you as well. So we’re going to say no. And that’s basically done.
I’ve now got my board minutes. I’m going to share that with my other board members. And it’s just me in this case on my donation company. And everything of course can be e-signed on SeedLegals. And when it comes time to sign it and share it with the other parties, I just hit the share button. So all of that is beautifully done. My document is now done. I’ve had my board meeting. That was easy, and now I’ve got permission to raise up to a million dollars in SAFEs.
So let’s go and do my first one. So here let’s say I want to do one for Jacque. And Jacque is going to be investing 200 K. And he’s going to be getting preferred shares, because investors typically get preferred shares. But if it was common stock, you could do that as well.
So, I now unlock, his SeedSafe. And it now takes me through the terms where, unlike the templates available on the internet, I can now combine things and get knowledge on what to do. So I’m going to say in this case, I’m going to do a post-money cap. And I’m going to say it’s a 5 million post-money cap, because I’ve already said that in my overall set of things. And I’d like if I don’t, I’ll also do a 20% discount. So the investor gets the best of both worlds.
Now you might the investor sometimes wants a pro rata side letter, and instead of messing around with other side letters, we build it in. You just say I want a side letter. And sometimes the investor will say, I want the most favored nation. Now you have to be careful about most favored nation, because this means any deal that you give to any investor in the future, before at the time this converts, this investor’s going to piggyback and get the best rights. And you have to be quite careful, because if you give MFN to many people, it becomes a race to the bottom. There you are thinking, yeah, I’ll give MFN to a few people.
And now you’ve got one key investor that you want to close, and they are insisting on better terms than you had in mind. And you go, I really need their money. And suddenly everyone else gets the benefit of those other terms, and you can find that you’re giving away way more equity and being diluted way more than you expected. So be super careful about not giving MFN. Unless it’s a major investor who really you need them and they’re really demanding is okay. And the pro rata side letter is a much easier thing to give because it just says this investor can invest to top up more in the next round, which many investors will want.
All right. Now in the UK, it’s very common that if there’s no funding round within a certain period, then the, the SAFEs will convert anyway, that 12 months or so. And that’s also common in the convertible note that was SAFEs.
That’s not so common. But sometimes you and or the investor might want that, if you’re not doing a funding round within, let’s say, 12 months, they want it to convert into shares anyway. And for investors, the fact that a SAFE can never convert, if you never do the funding rounds is a bit of a bugbear. It’s a problem for them. So if it turns out that you, or the investor, want the SAFE to convert anyway, in 12 or 24 months or whatever, if there’s no funding round, easy, you can set this here and then you can set when it would like to convert it. So I could say I’m going to convert if there’s no funding round within 36 months, converted anyway. And if I don’t funding round in that period, I’m going to convert it at a 5 million dollar valuation. All right.
Then the other thing is you can add in the bank details and we put them into the documents so the investor knows where to send the funds. And then like a separate email which can go wrong, and nobody knows why the money didn’t arrive, here it’s in the same document that they signed. So that’s great.
Now the next thing is the YC SAFE, frankly, is a bit of an impenetrable document. I mean, you can read it, try to figure out what it means. Even the discount that on the front page is backwards. If you’re giving a 20% discount, it’s going to say the discount rate is 80%. You have to be pretty experienced to know what it means.
The good news is you can make this much easier for your investor if they’re a newbie, by adding a cover page. So let’s add a cover page, and if you’ve got anything else we want to do, we want to promise them a board observer seat or whatever it might be, we can add that in the additional items. And then we support, you know, different jurisdictions as well. And if you are raised and you just happen to be raising from UK investors, we support that to give them their tax reliefs that they’ll all be wanting, and you can uniquely do that on SeedLegals. It needs special wording added so that it converts into common stock and we sort all that out for you.
All right. And that was it. Your SeedSAFE is ready to go. I just click that and now I’ve got my document here. It’s got a nice cover letter. The investor is going to know that because it’s on SeedLegals, nothing’s been tampered with. It’s going to be perfect. If you download, it’s going to be an exact match for the YC SAFE. If you’ve selected either caps, or discount, or MFN, then of course you can mix and match on SeedLegals as well. And then you can share it with the other party. You can invite them to sign, and you can always jump between the deal terms and the documents. So you don’t even need to read the full document itself. And so that makes things much easier.
And if I go back to my funding round page, if I want to do more SeedSAFEs, next time I do one and create another one, it will even let me clone the deal terms from the last. So it’s literally 30 seconds per SeedSAFE to do on SeedLegals, all included in the subscription.
And here’s the best bit. Nobody knows how YC SAFEs convert. The maths is a bit impenetrable. And the good news is we’ve sorted all that. So if you go into the cap table and you go into convertibles, you have all your convertibles listed and the platform will automatically do the conversion and work out the number of shares to issue at the time of your next funding round. And you can also play around with the exit scenarios and see how much everyone gets and how much you diluted and so on, as you make more SAFEs and more funding rounds.
So, SeedLegals is definitely the safest place to do SAFEs and anything you need just hit the chat bubble. Dedicated help and support is all included. Have fun!
See you on SeedLegals. Thanks!
If you’re planning to raise money for your business you might choose to use a SAFE (Simple Agreement for Future Equity).
A SAFE lets investors get equity in your company later, usually during your next funding round. It’s easier and more flexible than a regular funding round because you don’t need to value your company right away.
But it’s important to get it right! If not, you could get into issues, like miscalculating the conversion, which could lead to more dilution than you anticipated.
We make this process simple, secure, and efficient (even if this is your first time raising with a SAFE).
The platform offers:
- A guided process that walks you through creating customised SAFEs.
- Tools to explore exit scenarios and understand dilution.
- Built-in handling of board consents and signatures.
You also get dedicated support from our team, plus access to our partner law firm to answer your questions.
This video explains everything you need to know about creating, customizing, and managing a SAFE with SeedLegals 👇
🎥Watch: How to do a SAFE on SeedLegals
Want to learn more about SAFEs? Check out these articles:
Choose the right funding option: SAFEs, convertible notes, or priced rounds
Avoid dilution mistakes with YC Post-Money SAFEs
Can a SAFE qualify as Qualified Small Business Stock?
If you’re ready to raise with a SAFE or have any questions, speak to our team – we’re here to help!
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