Understanding SAFEs and Priced Equity Rounds by Kirsty Nathoo

I'd like to introduce you to Kirsty, who is going to talk in great detail about Safe Notes capital and similar things. Kirsty, she's okay, good morning everyone, so my name is Kirsty Nathu, I'm the CFO and one of the partners here at Y Combinator. Now I've worked with probably over 1,500 companies in terms of onboarding them by doing our investment in yc and then accompanying them in their subsequent raises, whether it's convertible instruments or

equity

rounds

, so I've already seen a lot of things, um, and this. This presentation is to give you an idea of ​​some of the things that people don't necessarily understand when they're raising money and hopefully help you avoid some of the pitfalls that we've seen with some of the mistakes that we've seen founders make. the key The key message throughout this presentation is that it is important that you understand at all stages of the company's life cycle how much of the company you have sold to investors and, relative to that, how much. therefore, you are also an owner and what complicates this is that most companies will raise money first with convertible instruments and, since those convertible instruments are not shares yet, for many founders it is not immediately obvious what part of the company they own .

I've sold myself, so I'm going to talk about some of the mechanics of that and help you understand how it all works so you're not surprised when it's too late and you can't do anything about it, so the other thing. What you also need to keep in mind is that a lot of companies and a lot of founders will just say, "Oh, I don't need to worry about my cap table." My lawyers handle my cap table. I don't need to worry and actually that's a really dangerous statement, again, you need to make sure you understand this.

It is your responsibility as the CEO or founder of the company to understand all of this and there are many ways you can maintain your cap table. In every possible way you can track this and the simplest form is just a spreadsheet, all it will show is who owns how many shares and that's it, it's all you need at first but there are other services that can help. and I'll include them in a resource list after the presentation, but there are tools like cap table dot io and carter that will help you keep track of these things as well, so these are the three sections that I'm going to talk about first. of safe deposit boxes and in particular for US companies, most companies will raise money first in safe deposit boxes or in some other convertible instruments which I will also talk about briefly and I know Jeff mentioned the safe deposit box last week um with a little bit of detail but I'm going to go into a lot more detail about that and also how the sections of the safe work, the s stands for simple and I hope you believe me with that and everyone will be ready to understand what happens in that safe when leaving this presentation.

Then we'll talk a little bit more about dilution again so you can see that we're going to walk through the life cycle of a company from incorporation. to raise a series of prices in a round so you can see how things change over that period and then I'll give you some top tips on other elements related to raising money so first of all that's for sure so let's cover What is it about. es and then we'll go over the details of how you build a safe, like I said, secure, the s stands for simple, the rest is a simple agreement for future capital and, simply put, it's an instrument where the investor will give you get money now to exchange of a promise by the company to give shares to the investor at a future date when you raise money in a listed round there are minimal negotiations with a safe deposit box there are really only two things that the investor is probably going to negotiate with, which is how much money will be allocated, how much money the investor will put into the company and what valuation cap, so really those two things are the ones that have to be negotiated, whereas when you compare that to a

priced

round, there are a lot of things to negotiate and that's what makes it much harder to close a price round and raise money than a safe, which is why often companies start with a safe and then when they get to the point where they can raise more money and they have an investor principal with whom they negotiate the pricing round, then the

safes

, when converted into shares, will take advantage of the terms that were negotiated with the principal investor in the pricing round.

The other thing to keep in mind is that a safe is not debt, so some of you will have raised what is known as convertible debt, which is a different instrument. Debt usually has an interest rate attached to it and has a due date by which the debt must be repaid. Safes don't have any of those things, so it's important to understand that there is a distinction between the two instruments, but in terms of conversion, in the way they are converted into a

priced

round, there are some similarities, so that this is the first section of the safe and this paragraph actually includes quite a lot of the key details that you need to understand in a safe, so it talks about that in exchange for payment by the investor, the investor will put a certain amount of dollars around this date and down here the valuation limit is a number, so really those two blank spaces are the two negotiation points.

This paragraph is something that we have recently added in our newest version of

safes

and this is something that we hope will help you that once you have read our safe that we have available on our website once, if there is this paragraph in the safe, then you will know that you have read the safe. The idea behind this is that if something changes in the safe, they cannot, neither the company nor the investor can say this paragraph, they cannot. Let's say it's the same as the safe that's on the y combinator website and as a founder you'll know you should take a closer look to see what's changed so this is something to keep your eyes open for when you receive an investor safe, okay, so the anatomy of the safe is pretty simple, it's only five pages long, so it's not very long.

We have tried hard to keep the language not too legal and therefore easy to understand. and it's really broken down into five sections, section one talks about what happens in several different sets of events, so most of the time what's going to happen is there will be

equity

financing at some point in the future, so The first part of the section talks about what happens and then how the safe becomes safe or there could be a liquidity event. Either company could be sold before the safe is converted, so it also addresses what happens if the company is sold before the sale while the safe is still there. pending or the company could decide to close while the safe is still pending, so it addresses that as well, so those are the three real key events that could drive the change of the safe, so it addresses all of those and We often get questions from founders or from investors.

They say, but what if, what if, actually, these three sections are the answers to almost all of those questions and then there are a couple more sections where we clarify the liquidation priority. , which simply means who comes first in line to receive the refund? these different situations, um, and also clarify that the safe actually ends, that is, it no longer exists if any of the three main events occur, so that section is a kind of instruction booklet, if something happens in your company, that's the section you should look at to see what. If something happens to you for sure, the next section two is just the definitions section, so everything we reference in the safe will be explained in section two.

If you are not sure what the definition of company capitalization is, please go to section two to consult. In that, for an explanation, section three is the representations that the company makes to the investor, so it says things like the company, the company is properly formed, it is properly formed in Delaware, section four is the representations that investors they make the company, so it's things like the investor says yes, I agree, I'm an accredited investor, and then section five is kind of boilerplate legal language that needs to be there, so from their point of view , the sections you really need to understand are sections one and sections two, obviously you also need to know what you're representing in section three, but those sections one and two are the key parts and that part is only three pages long. safe, so I'm pretty sure everyone can read three pages and understand what's going on, so I encourage you to do that.

Well, some of you may have heard that in the last few weeks we announced that we are moving to a different type of security. We have really introduced the concept of posting money safes and it is important that we understand what posting money means, what it basically means is that after all the safes have been converted, what happens at that point and we will delve into that a little more. Details in a moment, but it's easy to get confused about what it means to post money here, but after all, they are the safes, and the reason we introduced them is that we wanted to make it easier for founders to understand the dilution that they were drinking. that is, how much of the company they had sold to investors and therefore how much less of the company they owned, it was much easier to understand that with the postal money safes than with the previous safes we had, which were known like pre-money safes are fine, so basically when we talk about pre and post money, we're talking about the same thing, it's just a different way of phrasing it to explain it, so both in the price round and in the safes, the formula remains. the same, then the pre-money valuation plus the amount of money raised equals the post-money valuation of the company.

Well, if you have a pre-money valuation of five million dollars and you raise a million dollars, then the post-money valuation of the company is six million dollars, okay, and it's important to remember that in a moment, but in reality , that's as simple as possible, so based on that you can understand what part of the company you have sold when you are raising money in safe deposit boxes. The formula is only its owners or the property of investors. The ownership that investors will take is the amount raised divided by the subsequent money, either valuation in the case of a priced round or valuation cap in the case of a safe, in our example.

Before, if investors were putting up $1 million and the post-money valuation was $6 million, then they would own sixteen point six seven percent of the company. Does all of that make sense to everyone? So far, it's okay, so I'm going to do it. I'm going to talk only about safes with valuation limits here to keep things simple, but keep in mind that there are other different types of safes you can use that you may have already used or may discover you will use in the future. then there may be the concept of a discount rather than a cap, so instead of capping the valuation at let's say six million dollars, he says, there's a 20 discount on the series, a price, there's also an uncapped safe. which basically just says "I." I'm going to invest money now as an investor and when you do a priced round I'll get the same price that investors will get in the priced round, that's pretty rare because investors who are investing money early want some kind of bonus. for putting up the money early, so you're pretty unlikely to use one of those and finally there's a safe deposit box that's open with a most favored nation clause that basically what it says is I'm not going to agree. a cap right now, but if you raise some money from other investors who do have a cap and those terms are better than my terms, I get their terms just as good as an investor, so this can sometimes happen if you're raising money very early on and you don't really know what the limit is and maybe you know you just want to leave it for another month or two, but that creates a little bit more management for the founders because it's another thing they have to maintain. tracking um so sometimes we see them again they're not that common um by far the most common one is just the valuation limit okay so now we understand safes and how they're made up let's talk about dilution and

understanding

. how your cap tables work well, so we're going to walk through this process, so we're going to start with our company by reaching out to the corporation that Carolyn talked about right at the beginning of the startup school course, I think. so hopefullythis will be nothing new to you, then we will talk about what happens when you collect money in safe deposit boxes or after saving money, then we will talk about what happens when you hire people and start issuing shares to employees and then the company will make a round and then what happens to the cap table at that time?

Now I warn you that this is starting to get into the math section of the whole thing, so change your brain. Go ahead and keep focusing okay so incorporation so let's say it's a really simple company there are two founders and they split their shares equally between the two of them so in this example each founder owns 4.625 million shares , so there are a total of 9.25 million shares issued. and each founder owns 50, that's pretty straightforward, so at this point, in order for them to be able to own those shares, the founders have done the paperwork. They have awarded those shares through a restricted stock purchase agreement and there are rights to those actions, as discussed with Carolyn earlier in the course.

Okay, so the next thing that happens is this company raises some money. into a post-money vault and they raise money from two investors, so the first investor comes in pretty early and puts in two hundred thousand dollars with a post-money valuation cap of four million dollars and then a little bit later the investor b enters put options. at 800,000 with a post-money valuation cap of $8 million, so if you remember our formulas, the property that investor a has right now is the amount of money he has put in divided by the post-money valuation cap to the money he gives you. five percent of the company the same for the investor b 800 000 more than 8 million, which gives them 10 percent of the company, so in total the founders at this stage have sold 15 of the company, although this it does not change the actual cap table because these are not shares at this time this is just a safe deposit this is just a promise to give shares in the future the founders should know at this stage that they have sold 15 percent of the company and If they have sold 15 of the company then they can no longer own one hundred percent of the company, so now instead of the founders owning one hundred percent of the company between them, they have diluted it by fifteen percent , so they're going to go down to eighty-five percent of the company, so it's important to keep that in mind when you're raising money because while the cap table, like I say, doesn't change the fact that you just Selling 15 percent of the company is a big fact and it's important to know because "You want to make sure you don't sell too much of the company because you know there will be a lot of future fundraising going on with the company and therefore there will be more dilution in the future.

Is everyone happy with the way we are?" We've gotten to that fifteen percent. Yeah, the question is the founders are the only ones getting diluted at this point. The previous investor isn't getting the right value, so that the question is that it's just the founders that are diluting right now and yes, that's exactly right, because that's the construction of the post-money safes, the later, the later safe investors don't dilute. the previous safe investors, they just dilute the existing shareholders and at this stage it is only the founders who are the existing shareholders, does it make sense to have shares in the treasury so that they can cover the anticipated dilution, okay, so the question is whether?

It makes sense to have shares authorized but not issued. I think that's what you mean, so at this stage it doesn't necessarily make a difference, since we will see in a moment that you actually create new shares that you are going to issue to these security holders when convert, so at this stage it's okay to only have the shares that the founders have and maybe some that you want to distribute. for contracting, why does investment d have different post-money valuation limits? Well, in this example, the question is why do they have different post-money valuation limits and so in this example, you know it could be for many reasons, but in this example, we assume that you know that this This happened maybe a month after incorporation and maybe this happened six months after incorporation and more as more things have happened in the company and therefore a slightly lower risk, so the company has been able to negotiate a different limit, but things change across the company and it's totally fine to have different limits because as you can see from here, you just calculate everything separately and then add it all up, okay, so the companies raised a million dollars first thing, it's probably What we're going to do with that money is hire some people and when you hire employees you're probably going to give them some equity, so in this example the company creates at this stage an option pool, aka such as esop or employee incentive plan. many different names for it, um, and in this example, they have created a plan or a group that has 750,000 shares and they have issued their 650,000 shares to the first employees, so now this has changed their cap table because We have issued shares and therefore the fact that more shares are being issued means that the capitalization table changes because now we have more shareholders and now we have a total of 10 million shares that have been completely diluted, basically it means the combination. of issues issued and reserved in the option pool in this case, so now we have our founders, instead of owning one hundred percent, we have 92.5 percent of the company and the option plan in total is seven and a half percent of the company, but remember those safes.

These founders don't actually own 92.5 because they also sold 15 of the company, so they actually own less than 92.5 percent. They actually own 85 percent of that, which is about 78.6, so again this is where it becomes dangerous for founders if they forget about the safes, the founders are sitting there saying, "Well, I have 92.5, this is great. I still have a lot of shares in the company and they have forgotten about the safe deposits and the dilution they are about to take.” Again, it's very important to keep track of how much you've sold in your safes so you can do that calculation and say I don't actually have 92.5, I have 85 of that because I sold 15 of the company, but it's also that these numbers have been diluted by those safes, so as you'll see in a moment, these numbers also change, okay, now let's fast forward, let's say one year, the company is doing well, has raised a price round and has a term sheet for the pricing round that says that the pre-money valuation of the round is $15 million and that they are going to raise a total of $5 million of which the lead investor, who is the investor who will do all trading with is going to invest four million dollars, so if you remember our formula at the beginning, the post-money valuation is the pre-money valuation plus the total raise, so the post-money valuation is 20 million, The other thing that is negotiated as part of the pricing round is the increase in the option, so generally what happens is that investors in the series will say, okay, let's put some money in, we know that this money will be will be used for hiring. so we want you to create an option pool for all of the new employees that you're going to hire and give them equity upfront so that it's ready for those employees and typically you'll see that the option pool is about 10. percent, it could go up to about 15, but anything more than that is pretty non-standard, yeah, where did that come from?

Okay, yeah, so the question is whether the 10 comes from the founders or collectively, and you see at one point it's going to dilute the existing shareholders and the security holders, but it's not going to dilute the new money, so how do you dilute the new money? Is that options tool represented in the capital? So the question is how is the set of options represented in the cap table, so if we go back up to here we simply show it so that we have the options available from the pool that have not been issued is one line and everything that has been issued from the group it is a separate line.

The reason we show those two things separately is because these these shares are considered outstanding, they are considered issued, whereas these are not, and that's the difference between what fully diluted means, meaning shares outstanding , which are these two lines plus any actions reserved under the options group, okay, where are we? So, so quick, a quick math question for you, what do we expect the lead investor to own? What percentage of the company do we think the lead investor will own after the round closes? 20 yes, for the main investor 25 in total for everyone in the series, the investors are fine because they are the main investor and they are going to put in 4 million divided by 20 million dollars, which gives 20, so you will see in a minute the table of limits that works in calculations, but is always good. just do that quick check so you can feel check what's happening in your cap table, okay, in a price round where you have or where the company has raised money only after saving money and then has increased a round of prices for three things. will happen and these three things will happen at the same time in terms of the documents, but in terms of the calculations it is important that the order is correct, so the three things with postal safes is that the first thing that happens is that the boxes strong are converted into shares, then it is raised or an options group is created if there is not one already and then new investors invest and they will see in a minute how it all works with the calculations.

Now, another thing that's starting to get a little confusing. Here's kind of a jargon for how this works is that often lawyers and founders will talk about the safes that are included in the pre-money and what that basically means is that when new investors invest and calculate their price per share, the calculation includes the shares of the conversion of the safes, so although the safes themselves are called post-money safes, that speaks to how the safes convert this sentence where the safes are included in the previous money. about how the price of the series is calculated, so it gets a little confusing because it's post-money and pre-money, but that's something to keep in mind when this happens and obviously at the time you're raising a round with price.

You will have many advisors, you will work with lawyers who will also be able to explain all this to you. Alright, let's follow these three steps, so the first step is for our safes to become and We already know this because we have already done the calculation that these safes are going to become 15 of the company, so 15 of the company means 15 of the total fully diluted shares, both common shares and preferred shares, so investors get preferred shares that have a different set of rights and privileges than common shares, which is what the founders and employees get, so we have enough information here in the cap table that we have here to calculate what is the actual number of shares here because we know that they are going to be 15 of the total shares issued, so we know that they are 85 of the total shares issued, so we know what our total is and then once we get the totals, we can calculate what is five percent of that and what is ten percent of That's right, after a little algebra, these are the numbers that appear, so now, at this point, we have 11 million 764,705 shares in total because they are preferred shares plus common shares.

Our first safe investor, who we said was going to have five percent, has 588,000 shares, which is 5 percent of that 11.7 million, and our second safe investor has 10 percent. Now it's important to remember that this is part of a whole process, it's part of the journey through those three steps that are happening in a quoted round, and you'll never actually see your cap table looking like this. This is just one step in the calculation, but it's just to break it down so you can see where that 15 percent comes from and you can also see here that when they said that the founders instead of owning um 92.5 they owned about 78.

You can see that here because they've been diluted by those 15 just like um employees with their options, so this is the post money safes part. after the safes have been converted, but before anything else has happened regarding the price round, everything is fine, so the next step is, oh, we have to have a question, okay, so, the percentage of uh, if you can't come back, then five percent ten percent that has nothing to do with the wholesituation and they said they were fine, so the question is if the five and ten percent have nothing um yeah, okay, so yeah, so the five and ten percent is based on the valuation limit in the safe and , therefore, assuming that the round valuation with price is higher than the valuation limit in the safe, then this is only looked at with reference to the safe and is only connected to existing shareholders of um in very rare circumstances . that the price round is lower than the valuation cap of the safe, then actually these safe investors will get a better deal because they will sell their shirt and their safes will become at the same price as the series that the investors have, um , which is a lower price. than the valuation limit, so there is actually a chance that this could increase.

This percentage may be higher if the price round is valued at a price lower than the vault limit which does not trigger the conversion, but still triggers the conversion. if the valuation is lower because it is the fact that they have raised money that triggers the conversion, not the price, then it is something to keep in mind that when we talk about this, posting money saves and in this example, you are selling 15 units of the company, there is a possibility that it could be higher, but it is a fairly rare situation where you raise a price round that is priced lower than the valuation of your safes and it is also something to keep in mind when try not to do it. negotiate too hard with safes to make their caps too high because if you raise money with a cap of $100 million but then can only raise money in a round with a price tag of $25 million, let's say you're actually selling more of the company to those security holders than I expected, okay, so the question is if there is convertible debt, then this would happen here as well, so the calculation for convertible debt would be slightly different, um, but it would happen. here and it would show them the same as other investors because they would also become shares relative to the price round.

What if he went crazy and actually gave up or sold 85 percent of his company and the valuation was lower in the end, what happens you can't share well with them, so that's the big question, so the question is what happens if you go crazy and sell 85 of your company. Yeah, I mean, that's the problem that founders can raise as well. a lot of money with too low valuation caps, when they are raising convertible instruments they don't realize how much dilution they are taking and then they get to their pricing

rounds

and look at their cap table and they are like what I Now you only own 10 members of the company and unfortunately there is not much you can do at that time because you have already signed contracts with the investors to do this and that is why it is important not to get into that situation.

Firstly, if the savings are the limit price is higher than the price range, then you would lose a lot more. Can you explain that because I thought it would be, although the gap price was actually the correct limit because So, yeah, the question is how does the limit work in terms of the priced rounds, so if the price round is higher than the limit, then the safe becomes the limit, which means that the safe holders basically get more shares for the same amount of money than the series investors get, so in that situation that's how it is as you know what percentage you are selling, but in the situation where the limit is higher than the price of the round, then you would never do it, it wouldn't be fair. to the vault holders to get a worse deal than the series A investors because they put money in early and what happens then is you do the math, if you remember, if you go back to section one of the vault where it says what happens in a stock price round situation, it says that if the limit is um, if the limit is higher than the price round, then they just use the price round price to calculate their shares and because that price round price is different, these numbers will go Well, it depends, it depends on the delta, so if it is just a little different, then yes, maybe instead of 15 they sold 16, let's say, but if the delta is really big , then it could go up, but again, it is.

One thing to keep in mind is that in the current environment it is quite unlikely that people will raise price rounds at valuations lower than their safe deposit boxes just because when raising money in safe deposit boxes investors will not agree to invest at a ridiculously high valuation. high because they want to get that lowest price bonus when they say when their saves become yeah okay let's move on so in this step you're going to have to trust me so the next step in the section is that the group of options increases and this is actually a pretty complicated calculation, it gets a little circular and I'm going to share a model with everyone so you can see how it works if you're interested, but basically what you're trying to do is come up with 10 of the after-the-money stocks that are available in the option pool and in this example we're going to increase our option pool by 1.695 million and you'll see in a minute that flows through. in the cap table and you'll see that 10, but trust me on this one because it's a pretty complicated calculation and then in step three you invest the new money, so this is where we have our series of investors who put in five million Dollars. and there are a couple of calculations that happen there, so the price per share that is calculated for the round is the valuation divided by the equity capitalization, so this is the pre-money valuation of 15 million and when we talk about capitalization here What we mean is that this is the total of fully diluted shares after the safe conversion and the option pool increase, so this is step three because our safes have been converted and our option pool has increased, so we have our 10 million shares that we have.

Had issued 9.25 to the founders, 725,000 in the option pool, plus the sure convert shares plus the increase in the option pool and you'll see the numbers in a moment, so the number of shares you get the series you get investors is the amount they are investing divided by their price per share so those are the three calculations that you need to remember for your series a so here we go here they are here here are those calculations so we say that the capitalization we have our 10 million shares. that were already issued, we have our 1.76 million shares from the safe conversion and we have our increase to the option pool of 1.695 million, giving us 13.5 million shares in total.

We divided our $15 million between those stocks to get new money. price, this is the price that investors will pay for their shares of 1.114, which means that the $5 million of new money coming in will buy 4.48 million shares and the lead investor, because they are investing 4 million, you will get 3.59. million of those shares, so these are the calculations that are done, this is what the cap table looks like after the money, so now everything has been done in the round, so we still have our founders, we still have our options those numbers have not changed this number changed because it increased by 1.695 million and you can see here that now this is ten percent of the total shares, which is what we were targeting because that is what was agreed in the term sheet, we have our safe investors. who the number of shares has not changed because we had already done their calculation for the conversion but their percentages have changed, it has gone down a little and the reason why they have gone down is because the safe investors have been diluted by the money series and by the increase in the options set and then we have our lead investor and our other investors in our series a and as you remember when we did the quick back of the envelope calculation at the time of getting the term sheet of our The lead investor owns twenty percent, our other investors own five percent, so in total they have 25, so the founders here now own 51.5, which is a big jump from the cap table that we originally They were looking at where they owned, 92.5 and that's where this. it gets complicated if you don't understand your dilution, you don't understand how much of the company you've sold when you get to this point and you look at the cap table and you say oh no, I only own 30 of the company, how did that happen?

There's not much you can do because most of that dilution has already happened because you raised money from the safes, because you raise money from the safes and that's why it's very important that you keep track. of this dilution because at this point there's not much you can do about it, we're going to move on so we've briefly mentioned a couple of important tips for you about convertible notes and that's just another instrument that you can use to raise money in In the early days we often find that companies outside the US will raise money with convertible debt, there is nothing wrong with it, it is a little more complex just because you have to deal with the interest that accrues and the maturity dates, but Companies deal with that, but what I would say is try not to have a combination of safes and convertible notes just because it complicates things a little bit in the calculations, so if you start getting into debt, you'll probably continue with that , but the ideal is to start. with safe deposit boxes because it's actually making their lives a little bit easier, so again we recommend that businesses use post-money savings, but there are pre-money savings available and some of you may have already raised money in pre-money savings to money, that's totally fine.

It just makes it a little more complicated to understand dilution, but you can still do the same back-of-the-envelope calculation to get a ballpark figure, although it's not exactly exact. If you have raised money in pre-money safes, then it is okay to come. In the future, collect money in safes to post money, the calculations get a little complex, but it's totally doable, so it's okay, don't panic, I would suggest that you probably move on to post safes for money, even if you have already raised money in the safes to post money. -Save money just so you can keep track of your future dilution and a quick word on optimization in all of this when you are raising money in safe deposit boxes, don't try to optimize too much for the limit, it becomes very easy to start seeing this as it is like a competition and you start talking to your friends and you start saying, well, I've raised money with a limit of six million dollars and they say, well, I have a limit of eight million dollars and that's why I'm more successful than Lo you are and you know, as Jeff mentioned last week, fundraising is not the be all and end all, it's a means to an end, so don't try to over optimize, don't try to take this too far. because you're trading with investors who do this all day and every day and you're probably not someone who trades this all day and every day and in fact when I ran the numbers in the calculation we just did if I would have changed that 800,000 that were raised with an 8 million cap to a 10 million cap, the ownership at closing for the founders would have been 52.7 instead of 51.5, so it's not really a big difference, especially if you have two or three or four founders, co-founders and the extra pain of negotiating that two million dollar cap probably isn't worth it, you know, just take the money, do what you have to do with the money and make the company a success, okay, so in conclusion, use the money posted. safes where hopefully everyone can use them in the future, understand what they are selling with the company so make sure you track your dilution and understand where the company is sold and finally, again, don't over-optimize limits rating because it really doesn't make as much difference as you think it will thanks so much for listening, I know this is hard for you