Venture debt or SAFE
Compare the cost of a SAFE and of a venture loan for the same money, at every exit value.
Compare
A SAFE or a loan: which money costs more?
Raise the same amount on a SAFE or borrow it as venture debt. Move the exit value and compare what each one costs you.
Warrants as a part of the loan amount.
- The SAFE sells
- 10%
- $2M ÷ $20M
- SAFE cost
- $10M
- The stake sold, at this exit
- Loan cost
- $1.4M
- $599.53K + $800K warrants
- Break-even exit
- $6M
- Same cost for the two
- SAFE: value of the stake sold
- Loan: interest, fees, and warrants
At a $100M exit, the 10% that the SAFE sells is worth $10M. The loan costs $1.4M in interest, fees, and warrants. Above a $6M exit, the loan is the cheaper money, if the company can make the payments.
The loan payments are $94.15K a month after the first 12 months. You must make them also when the business goes badly. A SAFE has no payments.