Understand how founder ownership changes as you raise money
A SAFE (Simple Agreement for Future Equity) is not a loan and not shares yet. It's a promise that when a future funding round happens, the investor's money converts into shares at an agreed price. It lets you raise money now without having to officially price the company.
The cap is the maximum valuation at which a SAFE converts into shares. It protects early investors — even if your company is worth $10M when it converts, they convert as if it's worth the cap. This means they get more shares for their money as a reward for investing early.
Every time you issue new shares (for investors, employees, etc.), the total number of shares grows — so each existing share represents a smaller slice of the pie. Your ownership % goes down. This isn't necessarily bad — a smaller % of a bigger, more valuable company can be worth far more.
An Employee Stock Option Pool (ESOP) is equity set aside to hire and retain employees. Investors typically require a 10–15% pool to be created before their investment, which dilutes founders. Managing how fast you grant options matters a lot.
Most Favoured Nation means an uncapped SAFE investor gets to convert at whatever the best terms are among future investors. If you have an uncapped SAFE with MFN and a later investor gets a $3.5M cap, the MFN investor automatically gets that same cap.
A post-money SAFE fixes your ownership % at the time of signing, regardless of who else invests later. $100K / $3.5M cap = 2.86% — locked. A pre-money SAFE means more investors reduce that investor's share. Post-money is cleaner and more predictable for both sides.
Often the very first outside money a startup raises — small checks from people who know the founders personally: parents, relatives, close friends, former colleagues. It's usually raised before any product or traction exists, purely on trust in the founders. Amounts are typically $10K–$150K total, often on SAFEs with low caps or sometimes uncapped with MFN.
Keep it simple and fair. Use standard SAFEs (not handshake deals or custom contracts). Set expectations clearly: this is high-risk money that could be lost entirely. Avoid giving away too much equity early — low caps on large checks from family can cost founders dearly when those SAFEs convert. And never take money someone can't afford to lose.