When do I need a priced round instead of a SAFE?
Written by For Founders Law, a Toronto firm licensed by the Law Society of Ontario. About us
Short answer
You need a priced round when an investor, usually a lead fund, wants to buy shares at an agreed price rather than a SAFE, or when outstanding SAFEs are large enough that converting them is overdue. A priced round sets a valuation, creates a class of preferred shares, and comes with a shareholder agreement and more legal work. Many companies raise pre-seed on SAFEs and their first priced round at seed or Series A.
What’s the difference?
| SAFE | Priced round | |
|---|---|---|
| What investors get | A right to shares later | Shares now, usually preferred |
| Valuation | Not set; cap and discount instead | Agreed pre-money valuation and price per share |
| Documents | One short form, maybe side letters | Term sheet, articles of amendment, subscription agreement, shareholder agreement |
| Governance | Usually no board or veto rights | Board seats and investor approval rights are common |
| Closing | Rolling | Usually one closing, sometimes a second |
| Legal cost | Lower | Higher, often including the lead’s counsel |
When does a priced round make sense?
Usually when one or more of these is true:
- A lead wants it. Many institutional seed and Series A funds only buy shares. See what is a lead investor?
- The amount is larger. As rounds grow, investors want the protection of preferred shares, a board seat and a shareholder agreement.
- SAFE overhang. Several SAFEs at different caps make ownership hard to predict. Converting them in a priced round gives everyone a clear cap table.
- Investors want governance. A priced round is where board composition and approval rights get set.
When is another SAFE enough?
When the amount is modest, investors are angels or early funds comfortable with SAFEs, and you want to move fast. A post-money SAFE also lets you calculate exactly how much you’re selling. The risk is stacking too many, and being surprised at conversion. See what is dilution?
What does a priced round involve in Canada?
- Term sheet with the lead. See what is a term sheet?
- Articles of amendment creating the preferred share class or series, approved by special resolution under section 173 of the CBCA or section 168 of Ontario’s Business Corporations Act.
- Subscription agreement with representations about the company.
- Shareholder agreement, often a unanimous shareholder agreement, covering board, transfers, drag-along and investor rights.
- Option pool created or increased. See option pool shuffle.
- SAFE conversions calculated and documented.
- Securities compliance. Each investor needs a prospectus exemption, and an OSC report is due within 10 days where required.
- Due diligence on the company, in parallel.
What tax points come up?
Foreign investors can affect CCPC status, which affects SR&ED refunds and employee option tax treatment. Ask your accountant to review the post-closing cap table before you sign.
How do I prepare?
Clean up the minute book and cap table, list every SAFE and side letter, and confirm IP assignments from founders and contractors. Gaps found before a term sheet are much easier to fix. See our seed data room checklist.
Our investor due diligence prep starts at $1,480 and our SAFE round at $2,600. Priced round work is quoted before it starts. See fees.
This guide is general information about Ontario and Canadian law, not legal advice for your situation. To talk through your next round, book a free 15-minute consult.