Key Steps to Prepare for a Priced Round

SDS 061: Key Steps to Prepare for a Priced Round

Hey! thank you for reading issue 061 of Startup Definition Sunday (SDS). You can read past issues here.

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It’s a beautiful day in Nairobi, and by the time you read this, I’ll likely be back home from a Jazz Festival here in Nairobi, feeling energized and inspired.

Today, I want to talk about something on my mind: the shifting fundraising landscape for early-stage African startups.

For the last few years, many founders in Africa have raised capital through SAFEs (Simple Agreements for Future Equity). But lately, later-stage investors are leaning toward priced rounds to simplify cap tables of startups with multiple SAFE rounds.

If you’ve recently signed a term sheet for a priced round, here’s what you need to know and how to prepare for the process.

1. Appointing Legal Counsel (And Paying for It)

Once your term sheet is signed, your first step is to hire legal counsel. You’ll need both U.S. (holdco) and local (opco) legal advisors, as many startups are structured with a Delaware Holding Company that owns the local operating company.

Be prepared, founders are typically responsible for covering not only their own legal fees but also the costs of the lead investor’s legal team. These expenses can add up quickly, so plan your fundraising budget accordingly.

Pro Tip: Hire a lawyer who specializes in venture transactions and understands your market and structure. A good lawyer will help identify potential issues early and keep things on track. Priced rounds can take up to 8 weeks to close, so efficiency matters.

2. SAFE Conversions and Cap Table Management.

One of the most significant steps in a priced round is converting your SAFEs into equity. All SAFEs typically convert at the same time. If you’ve raised multiple SAFE rounds, this step can dilute your ownership more than you expected.

This is why your pro forma cap table becomes so important. It shows how much equity you and your team will own after the SAFEs convert.

Pro Tip: Make sure you completely understand the terms of your SAFEs, such as valuation caps, discounts, and any side letters. These factors directly impact your ownership after conversion. Use tools like spreadsheets or cap table management platforms (e.g., Carta or Raise) to track your SAFEs from day one and avoid surprises.

3. Legal and Regulatory Due Diligence

The lead investor in your round will conduct detailed legal and regulatory due diligence. This process often involves hiring local counsel (whose fees you’ll also cover). They’ll review your company’s compliance with local laws, corporate governance, intellectual property rights, employment contracts, and other key areas.

The results of this due diligence will influence the terms of your final deal. Issues like missing documents, unclear IP ownership, or non-compliance with regulations can delay, or even derail, the process.

Pro Tip: Conduct your own “pre-DD” before the investor’s team steps in. Double-check that all your paperwork is in order, your filings are up to date, and any loose ends are resolved. Being proactive can save you time and headaches later.

My Two Pesewas

Raising a priced round is a major milestone, but it’s also a complex process with many moving parts. By preparing ahead of time and knowing what to expect, you can navigate the process more smoothly and with fewer surprises.

If you found this helpful, share this newsletter with a founder in your network who might need this advice. Let’s demystify the fundraising process together.

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That's all for today. As always, thank you for being an engaged reader. Let me know your thoughts on this issue. I’d love to hear your experiences or tips on navigating tough decisions in leadership.

Until next time,

Jasiel

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