Colin Gardiner explains how to set a SAFE valuation cap without a lead investor: decide the maximum equity you'll give up (say 20%), divide your funding need by that percentage to get a baseline cap, then adjust lower for pre-revenue companies. The cap is ultimately a negotiation point between what keeps investors interested and what you can defend.
Questions this video answers
Set the cap based on the dilution you’re willing to give up. Decide the percentage of equity you’re comfortable with (e.g., 20%), determine the amount of money you need (e.g., $1 M), and back‑calculate a baseline valuation cap (e.g., $5 M). Adjust lower if you’re pre‑revenue or pre‑product, and be ready to negotiate with investors using discounts or other terms.
Amanda, do you wanna come on?
Hello. So my question is, so at the pre-seed, if you don't have a lead and you're raising on a SAFE, like who or how do you set the valuation cap?
That's a great question. Set it at what you want. No, somewhat the kind of the way I think about it is like really more of a dilution perspective. You say like, as a founder, how much of the company do I really wanna give up? And I know that's, this sounds like a bit backwards, but, you know, if you're saying, hey, I wanna do 20% and realistic 20% dilution and I realistically need $1 million to do what I'm gonna do, then, you know, that backs out at like $5 million, right? And I'm not saying that that's like, oh great, like every company's worth $5 million, right? Like if you don't have any traction, I'd say that $5 million is probably a good baseline. And that you probably should have a little bit lower cap than that because maybe you're pre-revenue or pre-product, you know, like there's, I have an art, like a little rubric that I put together and we can share afterwards to kind of help with this. But I kind of like just trying to help people anchor. It's like if you want, if you need $2 million to do what you need to do and you don't want to dilute more than 20%, then you need to justify to people that, you know, you can raise at that valuation, right? And so I don't know, I'm just using like, that's the way I would think about it from like a framework because it's very hard to like, like the cap, like as an investor, I think of it as the valuation, right? In the sense of like, I'm like, my mark is like, that's the valuation that's gonna come out because ideally if I invest in you and you grow, you're gonna raise at a higher valuation and I'm gonna come in at that. The downside scenario is like, not positive, but maybe you come in at 5 and I have a discount and I get a little bit better, but like that's fundamentally the valuation where I'm saying I'm willing to bet on you to get to at least that and hopefully above it. And so just tempering that to see where people are and like also realizing that it's a negotiation at the end of the day. Like if you have someone that's interested, they're probably gonna tell you, I think your valuation's too high, but I'm interested. Like if someone's not like, Someone's not like, I think if you came in at like a 15 and you have no product, people will be like, okay, I'm out. Like, I don't like, you're being unreasonable. Like, or I'm assuming you're unreasonable. And like, I just won't even have a conversation. But if you have like in the ballpark, I'll probably like nibble around the edges. I'll say like, you know what, let's bring it like a bigger discount or maybe, you know, something like that. People are interested. They'll tell you. I think that's the thing in fundraising. I just, even for myself to remind myself is like, you spend your time convincing people that are already interested and not the people that are skeptical.
