Modern Startup Funding

Levy reviews the basics: founders typically buy common stock, while investors usually fund companies by purchasing preferred stock or convertible securities. Preferred stock rounds set a price per share; convertible securities give investors the right to receive stock later.

Levy says financing documents became easier to find online and founders became more focused on reducing the time fundraising takes. Traditional Series A rounds could take months and cost $25,000 to $100,000 in legal fees. As startups needed less money to get started, that process became less practical for a first raise.

Convertible promissory notes began as bridge loans between priced rounds, then became a faster way to raise initial funding. YC created the SAFE as a simple convertible security without loan interest or a maturity date. SAFEs convert when a company raises a priced round, and the documents and guide are available online.

Convertible securities make early fundraising flexible, but founders may find it difficult to see how much ownership they have sold until those securities convert. Levy warns that many small checks can create a party round with 25 or 35 investors, making later stockholder consents harder to manage. She also says smaller investors may offer less advice or help than investors in a priced round.

Levy says priced rounds remain important, though they often happen after a startup's first raise. She recommends considering convertible securities for speed and flexibility, while noting that some Boston investors may be less familiar with SAFEs. A large first investment, such as a VC offering $5 million, can still make a priced round appropriate; founders should understand and track the resulting dilution.