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.
Modern Startup Funding
Speaker
Carolynn Levy, a lawyer at Y Combinator, explains how startup fundraising has shifted toward faster, more flexible early financing at Startup School in Boston.
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.
Takeaways
- Track the dilution from every SAFE or note, even before it converts.
- A priced round can make sense for a large first investment if the valuation works for the company.
- Many small checks can create extra work when investors later become stockholders.
- Choose financing terms that help the company reach its next milestone without losing sight of ownership.
- Explain SAFEs and convertible securities to investors who are unfamiliar with them.
Mentioned in this talk
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What was claimed 7
- built
Y Combinator built
SAFE
“initially created by Y Combinator, specifically Carolyn Levy”
10:48inStarting A Company? The Key Terms You Should KnowYouTube Verified3 sources· Talk, Web· archived
- featurePriced round: Investors buy preferred stock at a calculated, specific price per share.
“They're fundraising by selling preferred stock at a calculated, specific price per share.”
YouTube Unverified1 source· Talk
- featureConvertible note: A loan with an interest rate and maturity date that can automatically convert into stock in a subsequent round.
“It was a loan with an interest rate and a maturity date—a real note—but it also had a mechanism that would cause it to automatically convert into shares of stock when you did the next round.”
YouTube Unverified1 source· Talk
- feature
SAFE: One simple document, available online.
“Unlike the promissory note, it is one simple document.”
YouTube Unverified1 source· Talk
- feature
SAFE: Converts into stock when the company raises a priced round; it is not debt.
“It is a convertible security. It converts into stock when the company raises a priced round. ... it isn't debt”
YouTube Unverified1 source· Talk
- metric
SAFE: Five pages
“The SAFE is only five pages long”
YouTube Unverified1 source· Talk
- metric
Y Combinator: A YC company raised a $50 million SAFE.
“We had a YC company that did a $50 million SAFE”
YouTube Unverified1 source· Talk











