How startup funding works, from SAFEs to priced rounds and the SEC's Form D

Startups raise money in stages, and the paperwork changes as they grow. For the earliest checks, from angels, accelerators, friends and family, Y Combinator calls the SAFE, a contract that turns into shares later, the modern default. Larger rounds, where a lead investor sets a firm valuation, are priced rounds in which investors buy preferred stock. Y Combinator, the accelerator that created the SAFE, describes priced rounds as typical for Series A and beyond. When a startup sells securities privately, without registering them with the US Securities and Exchange Commission (SEC), it generally files a short public notice, Form D, within 15 days of the first sale.

The SAFE: shares later, not a loan

A SAFE, short for Simple Agreement for Future Equity, is “a short contract an investor signs to fund your startup now in exchange for the right to shares of stock in your startup later,” according to Y Combinator. Carolynn Levy created it at YC in 2013, and YC says it has been used to raise more than $15 billion for YC portfolio companies.

A SAFE is not debt. It has no interest and no maturity date, and it is not stock until it converts. Conversion happens automatically when the startup sells preferred stock in a priced round, and the post-money SAFE that YC uses sets no minimum amount for that round.

The terms that matter most are few:

• Valuation cap: the highest valuation at which the SAFE converts. If the priced round values the company above the cap, the SAFE converts at the cap, rewarding the early investor.
• Discount: a lower price than new investors pay. On a 20% discount SAFE, the holder pays 20% less per share in the next priced round.
• MFN: an uncapped SAFE that automatically takes the best cap or discount of any SAFE issued later.
• Pro rata right: the option, not the obligation, to invest in a future priced round to keep the same percentage, set out in a side letter.

Pre-money, post-money and dilution

A post-money valuation is the company's value after the new money goes in; pre-money is the value before it. YC's example: a founder who wants to raise $1 million while selling 15% of the company sets a post-money cap of about $6.7 million, or about $5.7 million pre-money.

On a post-money SAFE, the ownership sold equals the investment divided by the valuation cap, and the stakes add up. Five $100,000 SAFEs at a $5 million cap sell 10% of the company, not 2%, YC notes, so founders need to track the running total. SAFEs dilute the founders' ownership, and YC notes that pre-money and post-money SAFEs do so differently. It recommends the post-money version and calls pre-money SAFEs legacy.

Order matters if things go wrong. A convertible note is debt, and debt is repaid before any equity if a company is sold or wound down, so SAFE holders sit behind noteholders. If a startup with a valuation-cap SAFE is acquired or goes public, the investor gets the greater of the money back or what it would receive if the SAFE had converted to common stock. If the startup shuts down, the investor gets the purchase amount back, but ranks behind outstanding debt.

Who can invest

Private rounds such as Ramp's use Rule 506(b) of the SEC's Regulation D. Under it, a company can raise an unlimited amount of money and sell to an unlimited number of accredited investors, but it cannot use general solicitation or advertising to market the securities. It may sell to no more than 35 non-accredited investors in any 90-day period, and must give them disclosure documents and financial statement information. Buyers receive restricted securities, and states can still require notice filings and collect fees.

The SEC's accredited investor tests for individuals include income over $200,000, or $300,000 with a spouse or partner, in each of the past two years, with the same expected for the current year; net worth over $1 million, not counting a primary residence; or holding certain securities licenses in good standing, such as the Series 7, 65 or 82.

Form D: the public trace of a round

Companies that sell securities without registration under Rule 504 or Rule 506, or under Section 4(a)(5), must file Form D, “a notice of an exempt offering of securities,” within 15 days after the first sale. For this purpose, the SEC treats the first sale as happening on the date the first investor is irrevocably committed by contract to invest. There is no filing fee, and notices are filed online through the SEC's EDGAR system, where anyone can look them up by company.

Ramp's October 2026 filing shows what a Form D contains: the size of the offering ($1.85 billion), the amount sold so far ($1.585 billion), the amount remaining, the number of investors (40), the date of first sale, the exemption claimed, the names of executive officers and directors, and an industry group. It also shows what it leaves out. There is no valuation, no list of investors and no terms beyond the type of security and the minimum investment, and companies can decline to disclose their revenue range, as Ramp did. Read our report on Ramp's filing.

How to read funding news

• A valuation in a company announcement is the company's figure. A Form D will not confirm it.
• On a Form D, the offering amount is a ceiling, and the amount sold is what had been sold when the notice was filed.
• Money raised on SAFEs is not yet stock. It converts into preferred shares at the next priced round.
• A convertible note is debt and ranks ahead of SAFEs and shares if the company is sold or wound down.