Part 3: The First Capital Raise

Before you even think about term sheets or legal docs, you need to get clear on the why, how much, and who from. This is the commercial heart of your raise, and arguably the most important part.

You should be asking:

• Why are we raising now? What will we use the funds for, and will it get us to the next milestone or proof point for the next raise? Capital raising is rarely one-and-done - even if you have sales, chances are you’ll want to make the waka go faster.
• How much should we raise? Enough to get to that next proof point, plus some contingency so you don’t run out of gas on the way. Raising when you’ve fallen short isn’t a strong negotiating position. But don’t raise so much that you over-dilute or waste time chasing more capital than you actually need.
• Who are the right investors for us? Not just “who can invest,” but who should. Think beyond the money: who brings expertise, networks, credibility, or future funding potential?
• What will life be like post-investment? Are you ready for reporting, governance, and accountability? Is this the type of investor you want to take into your boardroom?

This is non-legal, non-theoretical, and often make-or-break. Getting this part right builds your network, clarifies your vision, and sets you up to negotiate from a place of strength. Think of it like a sales process. Just like selling your product, you need to clearly define your value proposition, and why someone should part with their cash to back your venture.

Part 2: The Legals (Aka The Close)

Found someone who wants in? Great - that's most of the battle. Now comes the paperwork and structure. The first two core questions are:

• Are you doing a priced round or unpriced round?
• If unpriced, are you using a SAFE or a convertible note?

These decisions affect:

• How fast you can raise
• The number of key points to be negotiated
• The costs of the raise

2. Basic Capital Raising Terminology

Here’s some helpful terminology to get your head around as you start your first capital raise:

3. Structuring the Round: Priced v Unpriced

When you’re raising capital, the first question you’ll often face is whether to do a priced or unpriced round. The difference? It comes down to whether you’re setting a valuation now, or deferring that to later.

Since valuation determines how many shares you give away, the dilution caused by the round won’t be known until that valuation is locked in.

What’s a priced round?

In a priced round, you and the investor agree on the company’s valuation upfront. Based on that, you issue new shares at a fixed price per share. The investor becomes a shareholder immediately once they invest.

Example:  You agree on a $3 million pre-money valuation and raise $1 million.  You currently have 1,000,000 shares on issue (including your ESOP), so each shares is worth $3.  The investor pays $1 million, receives 333,333 shares, and owns 25% of the company from day one.

What’s an unpriced round?

In an unpriced round, the investor puts in money now, but doesn’t become a shareholder straight away. Instead, they get a convertible instrument (usually a SAFE or Convertible Note, which we’ll cover shortly). That instrument converts into shares later, typically at your next priced round.

The valuation (and therefore the share price and dilution) is worked out at that future point - not now. So the investor doesn’t actually know that their equity percentage will be until that occurs in the future.

Summary of Key Differences

4. Options for Unpriced Capital Raises (SAFE v Convertible Note)

In an unpriced round, you're raising money using a convertible instrument - meaning you're taking in cash now, with the investor getting shares later or, in some instances, potentially being repaid.

The two most common convertible instruments in NZ are:

• Convertible loan (aka convertible note) – A loan that accrues interest, usually has a repayment date, and converts to shares on certain events (like your next equity round).
• SAFE (Simple Agreement for Future Equity) – Also converts to shares later, but without interest, a repayment obligation, or a maturity date. Seen as a more founder-friendly tool for raising early-stage capital.

The SAFE was created by Y Combinator in the US to replace convertible notes, which it has been largely successful in doing in that market. Since then it has become increasingly common in NZ too.

Key Comparisons: SAFE v Convertible Note

5. What is a SAFE?

Why NZ Founders Tend to Prefer SAFEs

SAFEs are generally preferred over convertible notes for a few good reasons:

6. Understanding the Post-Money Safe

SAFEs are generally more founder-friendly than convertible notes. There’s no interest, no repayment, and generally no shareholder rights. The investor is essentially along for the ride, waiting for the SAFE to convert at some future event they don’t control. That gives founders a lot of flexibility.

In 2018, Y Combinator updated its SAFE template to introduce the post-money SAFE. This version is gaining traction in NZ and is likely to become the default approach. It changes how the valuation cap works in a way founders need to understand.

What’s different about the post-money SAFE?

Example: If you raise $500k on a $4m post-money cap, the SAFE will convert into 12.5% of the company immediately before your next priced round, regardless of what happens after.

That 12.5% stake will then be diluted by the priced round investors, but not by other SAFEs or any ESOP pool increase.

Note that if the next priced round was for a valuation under that cap, then the SAFE will convert at that lower pricing meaning it will convert into more than 12.5%.

Founders Need to be Careful About “Stacking” SAFEs

Because each post-money SAFE locks in a fixed % of your company, if you keep raising more SAFEs before your priced round, you’re giving away more and more equity - quickly. This is demonstrated in the table below:

Example:

ABC NZ Limited raises $500,000 under SAFEs with a $5,000,000 post-money cap, implying a pre-SAFE company valuation of $4,500,000. 

If the company continues to raise SAFEs with the same post-money cap, founder dilution occurs quickly:

This is why we recommend treating your SAFE round like a proper round — not a series of one-off raises. First figure out:

• How much you want to raise in total via SAFEs; and
• What post-money cap makes sense for that full amount.

If you set and stick to a target raise amount, the difference between a pre-money and post-money SAFE is usually minor. But if you keep topping up SAFEs without a clear capital strategy, you risk losing more ownership than intended.

7. How Do I Negotiate My Post-Money SAFE?

Here is some guidance on the key terms you will need to negotiate for your SAFE round:

8. Who Can I Legally Raise Money from in NZ?

If you're raising capital in New Zealand (whether through a priced round, a SAFE, or convertible note) you can’t raise from just anyone.

Realistically, you’re limited to wholesale investors

The default rule under NZ law is that you must prepare a Product Disclosure Statement (PDS) — unless every NZ-based investor you’re raising from in your round falls within an exclusion under Schedule 1 of the Financial Markets Conduct Act 2013 (FMCA).

Tip: You won’t be preparing a PDS. It’s a complex, highly regulated document that must be registered and is expensive and time-consuming to produce. It’s designed for large-scale public offers — not early-stage startups.

You may have heard terms like “retail investor” and “wholesale investor.” Here’s the difference:

• Wholesale investor is a defined term under the FMCA that refers to just one of the permitted exclusions — but in practice, it’s often used as a catch-all for any investor who qualifies under any of the Schedule 1 exclusions..

So who can you raise from without a PDS?

To raise capital privately in NZ (i.e. without a PDS), your investors must fall into one of several exclusion categories under the FMCA. These are generally based on:

• What the investor does (e.g. they operate an investment business (like a VC) or are a habitual investor (Angel investors))
• Their level of wealth (e.g. high-net-worth individuals with certain levels of income or assets)
• The amount they're investing (e.g. a single investment of NZ$750k or more)
• Their relationship to you (e.g. family members, close business associates, or professional advisers)
• Their investing experience (e.g. eligible investors — people with prior experience who have certified they understand the risks and implications, supported by confirmation from an independent advisor such as a lawyer or accountant)

If you're not using a licensed crowdfunding platform, you’ll need to ensure each NZ-based investor qualifies under one of these exclusions — and be able to show this if required (e.g. for due diligence, investor audits, or future capital raises).