What valuation cap is reasonable for pre-revenue SAFE?

Have two angels interested, raising $200K total on SAFEs. We're pre-revenue, have an MVP with 200 beta users, no paying customers yet. B2B fintech space. Solo technical founder (me).

What cap is reasonable? I've seen everything from $2M to $20M online and I have no idea where I fall.

pre-rev solo founder with beta product? honestly $2-4M cap range. maybe $5M if you have amazing traction signals or hot space. $20M would be laughed at in 2024 market.

I invest in pre-seed. $3-6M caps are normal for what you describe. The fact that you're in fintech (harder to monetize, more regulatory) might push it toward lower end. 200 beta users is good but not exceptional.

Rule of thumb: your cap should be 2-3x what you think your next priced round valuation will be. If you expect to raise a $2M seed at $8M valuation in 12 months, a $3-4M cap gives angels a good deal without being unfair to you.

That helps. What about the discount? Should I do cap only or cap + discount?

standard YC SAFE is cap only, no discount. Adding both is old school and makes the math complicated. Pick one. Most founders just use cap.

discount-only SAFEs are sometimes used when you can't agree on cap. like "20% discount to whatever the seed round prices at." but personally I'd never invest on discount-only - no upside protection

Quick sanity check: at a $4M cap and $200K raised, your angels own ~5% when they convert. That's reasonable for early risk capital. At $2M they'd get ~10% which is pretty generous to them. Think about how much dilution you're comfortable with.

$4M cap = 5% sounds right. Going to propose that to the angels. Thanks for the framework.

@ValuationCurious how did it go with the angels? Curious if $4M held up in negotiations or if they tried to push back.

Market's been a bit weird lately - I'm seeing caps creep up again in certain sectors (especially AI/ML) but stay flat or compress in others. Would be helpful to hear a data point!

Just went through this exact exercise myself last month. B2B fintech like OP, pre-revenue but with a signed LOI from a potential customer. Ended up at $5M cap after some back and forth.

Pro tip: if you have any kind of customer commitment (even an LOI or pilot agreement), that significantly strengthens your negotiating position on the cap.

Slight disagreement with the "cap should be 2-3x your next round valuation" advice. That assumes you know what your next round will be, which you probably dont if youre pre-revenue lol.

I tell founders to focus on dilution math. What % are you comfortable giving up for this money? Work backwards from there. The cap is just a mechanism to get to that %.