Why do most early investors prefer capped safes and notes?
— Most early investors prefer capped safes and notes because if the value of a startup they invest in later increases significantly without a cap, it will dilute their investment and they won't take the risk of an uncapped investment.
What happens if investors wait and see before investing?
— If investors wait and see before investing, they may end up buying in without the discount, resulting in less equity as the valuation increases.
In what situations can founders dictate terms without a cap?
— Founders can dictate terms without a cap when they have already raised funds, need a bridge round, or are dealing with unsophisticated angel investors, but they should proceed cautiously in these cases.
Is the valuation discussion deferred when using a cap?
— No, the valuation discussion is not deferred when using a cap. The price per share for early investors will be determined by sophisticated investors.
What is the purpose of the cap in convertible notes and safes?
— The cap in convertible notes and safes is a mechanism that rewards early investors for their risk by placing a ceiling on the startup's value in the next round.
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