Why Startups Are Choosing Flexibility Over Valuation in Uncertain Times
As venture capital tightens, more early-stage startups are choosing convertible rounds—SAFEs (Simple Agreements for Future Equity) or convertible notes—over traditional priced equity. These instruments offer speed, simplicity, and founder leverage, but they’re not without risk. The question many founders now face: is this a smart bridge or a delayed trap?
- Why Convertibles Are Back in Fashion
In a market where valuations are hard to pin down, convertibles offer:
Deferment of valuation discussions until the next round
Lower legal costs and faster closings
Flexibility to raise incrementally from angels, syndicates, or micro-VCs
Especially in early stages, this allows startups to build momentum without locking in a down-round valuation.
- Founder-Friendly… to a Point
Many founders prefer YC-style post-money SAFEs due to clear dilution and no interest. However:
Stacking multiple SAFEs with different terms can create cap table confusion
High valuation caps may deter future investors
Hidden dilution may surprise founders during the priced round
As one fintech founder put it: “We raised $1M on SAFEs, but didn’t realize we’d diluted more than 30% when we converted.”
- Strategic Use: Bridge to Traction
The best use of convertibles is as a bridge to traction, not a replacement for a real round:
Build product and gather usage metrics
Secure strategic partners (who might invest in the next round)
Signal momentum while buying time for a better valuation
Smart founders now set clear milestones (e.g., $X MRR, user growth) and time-bound conversions to keep future investors aligned.
Key Takeaway
Convertible rounds can be an empowering tool in the founder’s toolkit—but only when used strategically. In today’s funding climate, flexibility is power, but clarity is protection. Know when you’re building a bridge—and when you’re walking into a trap.