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Investment Terms

  • Can I use any investment contract on Wefunder?

    Yes.  While we have template SAFEs, convertible notes, revenue shares, and loans, we can support any investment contract your law firm provides.

  • How do I choose the contract and set the terms?

    Your investment contract is the most important part of your fundraise.  If you choose the wrong contract, or have bad terms, no one will invest, and you will have wasted a lot of time.  It's like trying to sell a dozen eggs for $100. People are not stupid. 

    We recommend using Wefunder after a Lead Investor has invested $25,000+.  This makes it far more likely you chose the right investment terms.  

    That said, we know in some parts of the country, there are just not many angel investors who invest in early stage companies. So we'll try to help figure out what are good terms if that's the case.

    The right terms is very specific to your company, but here's some general advice for two kinds of companies that are more unlikely to have prior investors:

    • For an early stage technology startup that has as a reasonable chance of getting funded by venture capitalists, we recommend either a convertible note or a SAFE.  Valuation caps for early-stage technology startups with no prior investors can range from $2 million to $5 million.  It's possible for the very best early-stage startup (such as a Y Combinator startup) to raise at closer to a $12 million valuation cap.  However, if that's the case, then you will be in a position to have at least one prior professional investor who set the terms.  

    • For an early stage brick and mortar with expected cash flow, we recommend a revenue share contract.  We recommend offering at least a 2X return multiple.  Then, make a spreadsheet of all your projected cash flows for the coming 6 years.  We recommend choosing the percent of revenue to share that would investors a predicted 10%+ annual return.  
  • What's the difference between debt and equity?

    The biggest difference is the risk & reward.  Debt is slightly less risky for investors, but there is also much less upside. Equity is riskier, but potentially much more lucrative.

    • Debt. Investors lend the company money today in exchange for more money tomorrow. Investors are not shareholders, although they do have a right to company assets if the company goes under. We have two template debt contracts: Simple Loan and Revenue Share.

    • Equity. Investors buy shares or units in the company in exchange for ownership. Investors earn a return if the company is acquired, goes public on the stock market, or pays dividends. We offer two template equity contracts, a SAFE and a Convertible note.  There are other ways to structure an equity deal; if the SAFE doesn't fit your needs, your lawyer can draft a custom contract for you. Some examples include Preferred Stock or LLC Ownership Interests.

    While there are exceptions, we've seen equity offerings perform better on Wefunder.  About 90% of our investments are in equity agreements.  

  • Who should use a SAFE? How does it work?

    Created by Y Combinator, a SAFE (Simple Agreement for Future Equity) grants an investor the right to purchase equity at a future date. 

    A SAFE is best used for startups in Silicon Valley that intend to raise venture capital eventually, and have a chance to be acquired or file for an IPO.  It should not be used by lifestyle companies that do not intend to raise follow-on financing.  

    Unlike a convertible note, a SAFE is not a loan. As such, it does not accrue interest or have a maturity date. This makes things simpler and negates much of the need to amend the agreement in the future. For example, it helps startups not waste time extending maturity dates or revising interest rates, if a Series A financing takes longer than you first expect. It also better aligns with the intention of most equity investors, who never intended to be lenders.

    Wefunder offers the Y Combinator SAFEs as part of our default contracts you can use out of the box, modified only to allow unaccredited investors.  We also created versions for an LLC.

    The following terms are customizable:

    • Valuation Cap. The Valuation Cap is the most important term. It entitles investors to equity priced at the lower of the valuation cap or the pre-money valuation in the subsequent financing. Typical Valuation Caps for early-stage startups currently range from $4 million to $20 million.
    • Discount Rate. The default is 0%. This term is now rarely used and not recommended unless a major investor asks for it. It gives investors a discount on the price of stock, when the pre-money valuation is less than your valuation cap. Typical discounts range from 0% to 10%.
    • Governing Law. We default to Delaware, but you may change to any state.
    • Most Favored Nation (MFN) provision.  The default is false.  However, if you add this provision, investors will match the terms of any better terms you may offer other non-Wefunder investors.
  • Who should use a Convertible Note? How does it work?

    A convertible note is a loan that converts into equity after the company has a bit more operating history under its belt and there is more information available to establish a fair price.

    Startups in Silicon Valley typically use a SAFE.  However, a convertible note might be a better option for startups located in other areas of the country with more traditional investors.  

    If you raise on Wefunder, you can upload your own convertible note, or use our convertible note created by CooleyGo.  

    Our CooleyGo Convertible Note chose the options that were most founder-friendly:

    • When calculating the denominator for the converting securities, the option pool is not included (this matches the YC SAFE form)
    • If a qualified financing has not closed by maturity date, there is no auto-convert provision
    • Qualified financing does not  need to convert on/prior Maturity Date;
    • Notes may convert into a shadow series;
    • Noteholders do not  receive premium in connection with a change in control transactions; and
    • Noteholders do not have a right to convert to common.


    The following terms are customizable:

    • Valuation Cap. The Valuation Cap is the most important term. It entitles investors to equity priced at the lower of the valuation cap or the pre-money valuation in the subsequent financing. Typical Valuation Caps for early-stage startups currently range from $4 million to $20 million.
    • Discount Rate. The default is 0%. This term gives investors a discount on the price of stock, when the pre-money valuation is less than your valuation cap. Typical discounts range from 0% to 10%.
    • Interest Rate. The default is 3%.
    • Maturity Date. The date the note is due.
    • Governing Law. We default to Delaware, but you may change to any state.
    • Most Favored Nation (MFN) provision.  The default is false.  However, if you add this provision, investors will match the terms of any better terms you may offer other non-Wefunder investors.
  • Who should use a Revenue Share?

    A revenue share is best for early stage brick and mortar businesses making cash.  This is a promissory note that is paid back from a share of the revenues of the business. It's typically more exciting for investors than a standard loan. Since the payments vary based on revenues, it can also be safer for a company with less predictable cash flows.

    Here's how it looks on the profile: 

    To preview a sample, download the Revenue Loan Agreement.  By default, the following terms are customizable in our template:

    • Gross or Net Revenues. Net revenues exclude returns or shipping costs.
    • Revenue Percentage. This is the percentage of revenue that is shared.
    • Repayment Amount. Typically 1.5-3.0X, this is the maximum amount you will be paid back.
    • Quarterly or Annual Disbursement. Companies choose to make annual or quarterly payments.
    • Defer Payments. By default, every company can miss one payment without being in default.
    • Secured. Some loans may be secured with all property of the business.
  • What is a Disaster Loan?

    Wefunder developed Disaster Loans for the coronavirus crisis.  The intention was to help save small businesses by allowing their customers to give a very low interest loan, with flexible repayment options based on revenues.  

    The Disaster Loan is best for small businesses with a passionate customer base who wants to support the companies they love during a crisis.

    Like a mortgage, a disaster loan has an interest rate.  However, unlike a mortgage, there is no fixed repayment schedule - the time it takes to pay back is an unknown, as it is based on the revenues of the business.    

    To preview a sample, download the Revenue Loan Agreement.  By default, the following terms are customizable in our template:

    • Interest rate.  The annual return investors will receive by the time the loan is paid back.
    • % of Revenue Shared. This is the percentage of revenue that is shared until the loan is paid back.
  • Can I do a priced round on Wefunder?

    Yes!  However, due to the complexity of priced rounds, we don't have a default contract out of the box.  We believe it's more wise for a founder to work with a law firm on these documents.  We can upload into our system any custom agreements your law firm provides.  

    For an earlier-stage company, we typically recommend a SAFE or a convertible note.  Besides being a dramatically simpler agreement, it allows the founder to do high-resolution fundraising.  

    However, if you have a major investor who can anchor a round (typically investing $250,000 or more) and negotiate the complex terms, doing priced equity might be a good option.  Your law firm should provide these documents.  However, if you'd like to save money, you can send them the CooleyGo Series Seed Generator.