Deal of the Week
We need more power to power AI.
As previously mentioned, the U.S. is lagging in the “power wars” with China, and there are significant constraints on land due to permitting and planning (see my post below on bottlenecks). Into this gap steps capitalism, funding alternative energy sources such as nuclear power. This week, Berkeley-founded CorPower Ocean raised $62M to harness the power of the ocean and unlock a new source of energy.
Interestingly, another startup, Panthalassa, just raised $140M to build floating data centers.
You can see the pattern here: Energy and Compute. 🚀⚡️
We are in a bottleneck world - livin’ la vida loca, just gotta ride it.
For anyone who follows the stock market, the last few weeks have been wild.
I posted about the Taiwanese and South Korean stock markets a few weeks ago, and they have been on an even bigger tear since then. Investors are chasing the next “bottleneck” in the AI trade, and the opportunities are becoming increasingly niche. Japanese toilet maker Toto is up 70% YTD, driven in part by its small semiconductor components division.
There are bottlenecks up and down the AI stack, from chips to construction. JPMorgan recently noted:
"The latest analysis based on satellite images shows that over 60% of data center capacity planned for completion in 2027 has not begun construction, with another 7% delayed."
Weirdly, these bottlenecks might actually be a good thing, preventing a massive overbuild and potential bubble.
Give this a read. It discusses why TSMC—the key cog in all of this as the world's leading chip manufacturer—is unlikely to overbuild.
The ‘UNSAFE’ SAFE
What started as a fantastic idea to quickly and cheaply raise capital has gotten out of hand.
The SAFE Origin Story
SAFE = Simple Agreement for Future Equity
SAFEs started as a founder-friendly instrument allowing you to:
Raise quickly
Avoid legal drag
And most importantly keep building
But the instrument designed to simplify fundraising has quietly become one of the easiest ways for founders to lose control of their cap table and ownership.
Before 2013, founders faced two clunky choices: raise a priced equity round (slow, legal-heavy) or issue convertible notes (debt with interest, maturity dates, and default risk). Y Combinator’s Carolynn Levy introduced the Simple Agreement for Future Equity (SAFE) in December 2013 to remove the debt and shave thousands off legal bills. It took off. (Check out template documents here)
By Q4 2021, 63% of un-priced rounds on Carta were SAFEs, now around 90%.
As seed rounds ballooned and founders stacked multiple SAFEs at different valuation caps, no one could see real ownership until the priced round closed. The reason was structural. The original pre-money SAFE put the cap on the pre-money valuation, so every SAFE shared the same pie. Add another SAFE and you didn't just dilute the founders instead you diluted every earlier SAFE holder too. Nobody's slice was fixed until the round was priced and the whole stack converted at once.
In 2018, YC introduced the post-money SAFE, now the more popular early-stage instrument. It pinned each holder's ownership to a simple ratio which is investment ÷ post-money cap. So a new SAFE no longer touched the investors who came before. From then on, dilution from future SAFEs fell almost entirely on the founders
That was the theory behind the post-money SAFE. In reality it rarely plays out that way, because too many people either skip the maths or assume the whole game is just to keep raising at incremental valuations.
Spoiler: It can be painful.
Consider this in practice with $5M of capital raised at different valuations before your Series A.
Founders don't lose control of their cap table in one financing. They lose it one SAFE at a time.
Why investors eventually push for a priced round
Ironically, post-money SAFEs are often great for investors. Their dilution is largely locked in. The problem isn't the SAFE itself. The problem is what happens when founders stack multiple SAFEs without fully appreciating the cumulative dilution.
Eventually, investors push for a priced round because it brings clarity to the whole situation before the cap table becomes unmanageable.
What this means for founders
Before a Series A investor has even seen the deck, founders have already sold ~42% of the company.
Add a typical 20% Series A and a 10 % option-pool refresh, and founders drop to the mid-30%. You might be at 10% each at the Series A if there are three founders.
Your investors (should) want to set you up for success so you have a clear route to owning a meaningful amount of the company.
When a SAFE becomes “UNSAFE”
Series A investors, therefore, see all of this and have three unenviable choices:
Don’t do the deal. It requires too much effort.
Structure the deal so existing investors absorb the dilution and the founders get topped up. Note that some SAFEs need Series consent, which could block this approach.
Ask the founders to approach each SAFE Series holder for approval of extra dilution, allowing an equity top-up for the founders that’s carved out of the SAFE anti-dilution provisions.
We have seen all the above flavors, and no one feels warm and fuzzy. Founders typically experience considerable extra brain damage at a crucial juncture in building a business. This is hard to quantify, but it is real.
Practical Advice
At the end of the day, as founders, you need to raise money to build a business, and you don’t always have the luxury of choice, but simple advice to keep in mind:
Cap the SAFE series count – Two tranches max before a priced round. Over about $3.5M of investment do a priced round.
Standardise terms – Same cap, same discount. Don’t be greedy to increase your valuation 10% in two weeks.
Do the maths and model forward - Always have a fully diluted pro forma cap table to hand.
Don’t sleep on a priced round – Once you have real traction, run the equity round; don’t let your belief in running fast mean you stack another SAFE. Do a priced round.
Keep investors in the loop - Avoid surprise repricings that poison existing relationships, or, worst case, be transparent about it.
Bottom Line
SAFEs are a superb invention, but like many things in life, they are best used in moderation. Use them, keep them clean, and always know your ultimate dilution before the Series A term sheet lands.
Appendix
SAFE Dominance: A four-year snapshot
The chart below shows just how quickly SAFEs crushed convertible notes at pre-seed.
Data: At pre-seed and seed, the dominance of SAFEs continues to grow- Carta
Quick Takes
Is this the great promised IPO window?! Anthropic just confidentially filed.
Summary by the #️⃣ & 💰:
4 Berkeley-founded companies funded
$118M of capital raised from the 25th to 31st May
💡 Got any ideas or feedback on how to improve this weekly digest? Just hit reply.
Acquisition
🐻 Alex Yancher, Co-Founder & CEO. BS EconArticle
Closed Rounds
🌊 CorPower Ocean $62M Series B1 🇸🇪 Wave energy converters. 💰 Cisco Investments, Iberis Capital, NextView Ventures
🐻 Patrick Möller, Co-Founder & CEO. MS Semiconductors Article
🫀 Secretome Therapeutics $30.0M Series A 🇺🇸 Cardiac regenerative therapeutics. 💰 RA Capital Management
🐻 Vinay Sundaram, Co-Founder & CEO. MA Endocrinology. Article
🤖Teamily AI $20.0M Seed 🇺🇸 Collaborative AI platform. 💰Undisclosed
🐻 Salman Avestimehr, Co-Founder. PhD EECS Article
💳 Trinio $6.4M Seed 🇧🇷 Payment gateway platform. 💰 Gigantes Ventures, Global Founders Capital
🐻 Pablo Staubli, Co-Founder. Economics Article
Date Built By Berkeley Started | Companies Funded | Total Raised ($M) |
7/8/24 | 757 | 212,317 |
Our goal is to document the startup ecosystem of Berkeley-founded companies. Please share this newsletter with any Cal Bears in your network so we can crowdsource information about all investment rounds and job opportunities.
Did we miss a company or want to announce a round? Add it here, and we will post it next week.
Do you have a job you want to post from a Berkeley Company? Add here.
Is there someone in the Berkeley ecosystem that you would want us to do a profile on? A founder, funder, or general startup person? Add here.
Built By Berkeley is not affiliated with UC Berkeley, but maybe we will be one day if we get enough subscribers….
Built By Berkeley, where we announce all the funding rounds by Berkeley-founded companies. This is a community effort, so please let us know if we missed a company here. 🐻
