Startup Founders’ Guide to Early-Stage Funding

At Boulder Startup Week 2026, KO attorney John Kyed and partner Ian Kuliasha led a session called “Startup Founders’ Guide to Early-Stage Funding” to a room full of founders hungry for practical, straightforward guidance on how early-stage financing actually works — not just in theory, but in the real world. Below is an overview of the core concepts from the session and strategic considerations founders should understand before raising outside capital.

SAFEs vs. Priced Rounds: Understanding the Difference
Startups typically raise early capital through either SAFEs or priced rounds. The SAFE (Simple Agreement for Future Equity) is a short-form financing instrument where investors provide money today in exchange for future equity, usually when the company completes a priced financing round. Investors do not receive stock immediately; the SAFE converts later upon a triggering event.

Popularized by Y Combinator, SAFEs became common because they are fast, standardized, and relatively inexpensive. They are especially attractive for early-stage founders and angel investors seeking a streamlined process with minimal negotiation.
As companies mature and raise larger rounds, investors generally seek greater governance and economic protections, leading to priced rounds.

A priced round involves selling preferred stock at a negotiated valuation. Unlike SAFEs, investors receive equity immediately along with negotiated rights such as liquidation preferences, anti-dilution protections, board seats, information rights, and approval rights over major decisions. Priced rounds are more complex and document-heavy but are the standard structure for institutional venture financing.

Key SAFE Terms Founders Should Understand
“Dilution” occurs for existing shares (and for the existing shareholders holding those shares) whenever new shares are issued. New shares increase the total number of shares outstanding (the denominator) thereby reducing existing ownership percentages represented by a shareholder’s existing shares (the numerator). Every equity/future equity financing creates dilution whether immediate (as with a priced round) or future (as with a SAFE), so founders should understand how ownership changes over multiple rounds of financing.

A “valuation cap” SAFE sets the maximum valuation at which the SAFE (or other similar convertible security) converts into equity, rewarding early investors for taking greater risk by putting a cap on their effective share price.

A “discount” SAFE forgoes the valuation cap, and instead sets the price per share for the SAFE investor at a discount to the future share price— often 20% lower than new investors in the next financing round.

A “Most Favored Nation” (MFN) SAFE does not give the SAFE investor any specific valuation cap or discount but gives the early investor comfort that if better economic terms are offered in later SAFEs, the early investor will get the same treatment.

Note that single-term SAFEs are the most common today, and the prior “valuation cap and discount” form of SAFE (which combines multiple mechanisms) has been discontinued by Y Combinator.

When investors request additional rights like pro rata participation rights, information rights, or board observer seat rights, those terms are often documented in side letters. While common, side letters can increase complexity and are a good reason to involve experienced startup counsel early.

Priced Round Terms: Economics and Control
Priced round provisions generally fall into two categories: economic rights and control rights. Economic rights govern investor economics and commonly include liquidation preferences, anti-dilution protections, and dividend rights. Control rights govern investor involvement in company decisions and often include board composition, investor veto rights, information and reporting obligations, and consent rights for future financings or equity issuances. Founders should understand both ownership and governance implications before signing financing documents.

Preparing Your Company for Investment
Investors want diligence to be boring. When your lawyers and an investor’s lawyers go through your data room and find nothing interesting, that’s a win. Clean legal and organizational records help financings move faster and with fewer issues. It’s especially important to get your cap table and your intellectual property right upfront, as those are two key areas where founders can lose momentum and incur unexpected expense cleaning those items up before a financing.

To help keep their cap table in order, founders typically want to establish a vesting schedule – typically a four-year schedule with a one-year cliff to protect the company and the other founders if a founder leaves early. Vesting is intended to help minimize the risk of “dead equity,” which refers to ownership held by inactive contributors. Excessive dead equity can complicate fundraising by limiting equity available for future hires and investors.

Founders should always keep in mind that investors need confidence that the company owns its technology and assets. Technology assignment agreements transfer pre-formation intellectual property into the company, and Proprietary Information and Invention Assignment Agreements (PIIAs) ensure intellectual property created by employees and contractors belongs to the company. Anyone contributing to core product development should sign at least a PIIA (comparable independent contractor services agreement that contains comparable terms) and may also need to sign a technology assignment.

Also, founders should keep in mind that if significant portions of their code were generated using AI tools, that can create IP ownership questions. The answers to some of these questions are still being worked out in the courts, but disclosure schedules for priced rounds are increasingly requiring founders to address this directly. Because the legal landscape is still evolving, founders should proactively review these issues with counsel.

Common Mistakes Founders Should Avoid
Founders should always keep in mind that selling a SAFE is selling a security, meaning securities laws and compliance obligations still apply. Founders should also be careful around unrealistic valuation caps, which can either discourage future investors or create unnecessary dilution through down-rounds later. Most importantly, founders should model dilution scenarios before fundraising and fully understand financing documents before signing them.

The Bottom Line
The right preparation is critical to early-stage financing. Founders who understand dilution, maintain clean cap tables and IP documentation, and involve experienced counsel early are better positioned for successful fundraising.

If you have questions about early-stage fundraising or startup financing strategy, contact John or Ian.