What is a SAFE agreement and how does it benefit early investors? A SAFE, or Simple Agreement for Future Equity, is a funding tool used in the initial stage of a business when you don't have the metrics or traction an institutional investor would look for. It allows you to raise money, often from friends and family, and essentially gives them more shares later because they invested early. For example, if you raise a price round at a $10 million valuation and a SAFE investor came in with a 20% discount, they would get an $8 million valuation, which means they get more shares.

How do bankers evaluate a traditional business loan application? Banks typically want to see at least two years of tax returns that show you make money. They need to know that you are not a high risk. They're looking at your financials, and you have to be able to make a case for why you want the money, how you'll use it, and how you intend to pay it back. They will also look at your personal credit, as you will personally guarantee the loan.

Why is it so important to build relationships with bankers and investors? The relationship aspect is pivotal. A founder of WeWork, for example, had a great relationship with the right people, which helped him get the funding he needed even though his business wasn't worth what he claimed it was. A good banker will get to know you and your business plan. They'll also understand your numbers, but they want to invest in you and your ability to execute your vision. The best time to get a line of credit or secure funding is when you don't need it.

Watch the full episode at https://youtu.be/eKd19B_592M and read more in THE ASCENT | 014