investment, angel-investorsI’m a startup looking to raise a seed round with angels before going to VCs for a series A. I want to suggest an unpriced round through a SAFE agreement with a discount. What is a typical discount rate?
‘typical’ is difficult, as every deal is different. However, I have heard of agreements from 5% up to 20%.
I don’t personally know anyone who has done a deal over 20% but I am sure they happen.
A lot will depend on what your plans are for future investment and how much you are raising this round. If you have a target valuation in mind for the next round and a plan to add that much value to your business between now and then, you could get a vague idea of how much equity the investment will convert to at the next round with differing discounts.
Take a look at other start ups in your area and look at their valuation progression. Also look at other startups in your sector and track their valuations. Do valuations get based on specific metrics (number of active users, turn over, downloads)?. If they do track to metrics then look at your plan for those metrics to work out a best case valuation. Then set a discount you’d be comfortable with.
This also gives you some credit with investors as investors like to see that the future of the business has been considered.
Saying all the above - it’s probably easier to think of these things after having been through this a few times. From a purely instinctual level I would have a difficult time agreeing to anything over a 10% discount unless the investor involved was bringing something unique to the table or the amount of money invested was low - meaning the risk of a low valuation next round wouldn’t necessarily have a huge impact on the amount of equity given over.
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