Calculate SAFE terms for Chicago startups. Pre-seed caps $3.5M-$6M, Seed $8M-$12M. Understand Midwest valuation benchmarks 30-35% below SF. Built for fintech and healthcare founders.
Simple Agreements for Future Equity (SAFEs) have become the dominant fundraising instrument for early-stage Chicago startups, particularly in the city's thriving fintech, healthcare technology, and logistics sectors. However, Chicago's investment ecosystem operates with distinct valuation benchmarks and investor expectations that differ significantly from coastal markets. Understanding how to structure SAFE terms that align with Midwest investor expectations while protecting founder equity requires Chicago-specific knowledge and precise calculation tools.
Chicago startups typically raise SAFEs with valuation caps 30-35% below San Francisco equivalents—not because Chicago companies are less valuable, but because regional capital markets, cost structures, and investor philosophies create different pricing dynamics. Pre-seed valuations in Chicago cluster around $3.5 million to $6 million caps, while seed rounds typically range from $8 million to $12 million. These benchmarks reflect Chicago investors' emphasis on capital efficiency, sustainable growth, and operational discipline over aggressive blitzscaling.
A SAFE calculator tailored to Chicago's ecosystem helps founders model dilution scenarios, compare term sheets from multiple investors, understand how different discounts and caps interact, and structure deals that balance investor returns with founder control. Whether you're raising your first pre-seed round from Hyde Park Angels, negotiating seed terms with MATH Venture Partners, or fielding interest from Pritzker Group Venture Capital, understanding SAFE mechanics and Chicago-specific valuation norms is fundamental to successful fundraising.
The Simple Agreement for Future Equity (SAFE) was created by Y Combinator in 2013 as an alternative to convertible notes. SAFEs represent the right to purchase equity in a future priced round, providing investors early-stage exposure without immediately setting a company valuation or creating debt obligations.
SAFEs convert to equity when a qualifying financing event occurs—typically a priced Series A round. The conversion happens at a discount to the Series A price, a capped valuation, or whichever mechanism provides the investor better terms. This structure aligns investor and founder interests: both parties benefit from maximizing the Series A valuation, since higher valuations validate the company's progress while SAFE investors still receive preferential conversion terms.
Unlike convertible notes, SAFEs have no maturity date and no interest rate. This eliminates the pressure of debt repayment and removes negotiation friction around note terms. For Chicago founders raising capital while building toward product-market fit, SAFEs provide crucial flexibility to focus on customer development rather than fundraising timelines.
Chicago's investment community has embraced SAFEs for several ecosystem-specific reasons:
Chicago's valuation landscape reflects the city's emphasis on sustainable unit economics, capital efficiency, and demonstrated traction over narrative-driven fundraising common on the coasts.
Pre-seed rounds in Chicago typically occur at idea or MVP stage, with minimal or no revenue. Valuation caps in this range reflect:
Fintech Startups: $4M-$6M caps
Healthcare Tech Startups: $3.5M-$5.5M caps
Logistics and Supply Chain Tech: $3.5M-$5M caps
B2B SaaS: $3.5M-$5M caps
Seed rounds in Chicago occur after achieving initial product-market fit signals: revenue traction, user growth, pilot customers, or other validation metrics.
Fintech Startups: $9M-$12M caps
Healthcare Tech Startups: $8M-$11M caps
Logistics and Supply Chain Tech: $8M-$10M caps
B2B SaaS: $8M-$11M caps
Understanding valuation differentials across markets helps Chicago founders contextualize term sheets and negotiate effectively with out-of-market investors.
San Francisco B2B SaaS Startup (Team-stage, MVP):
New York City B2B SaaS Startup (Team-stage, MVP):
Chicago B2B SaaS Startup (Team-stage, MVP):
Valuation Delta: Chicago valuations 30-50% below SF, 25-35% below NYC
San Francisco B2B SaaS Startup ($750K ARR, 20% MoM growth):
New York City B2B SaaS Startup ($750K ARR, 20% MoM growth):
Chicago B2B SaaS Startup ($750K ARR, 20% MoM growth):
Valuation Delta: Chicago valuations 35-45% below SF, 25-33% below NYC
Chicago founders sometimes view lower valuations as disadvantages, but regional pricing dynamics create several strategic benefits:
SAFEs contain several key terms that founders must understand to model dilution and negotiate effectively.
The valuation cap sets the maximum effective valuation at which the SAFE converts to equity. If your Series A occurs at a $20 million pre-money valuation but your SAFE has a $5 million cap, SAFE investors convert as if they invested at a $5 million valuation, receiving 4x more shares per dollar invested than Series A investors.
Chicago Norms:
The discount rate gives SAFE investors a percentage discount to the Series A price per share. A 20% discount means SAFE investors pay 80% of the Series A price, receiving 25% more shares per dollar invested.
Chicago Norms:
When a SAFE includes both a cap and discount, investors receive whichever terms are more favorable. This means:
Example: Chicago Seed-Stage Startup
Startup raises $1.5M on SAFE with $10M cap and 20% discount. Series A occurs at $25M pre-money valuation:
Pro rata rights give SAFE investors the option to invest in future rounds to maintain their ownership percentage. This term has become increasingly common in Chicago SAFEs, particularly for institutional investors.
Chicago Norms:
MFN provisions allow early SAFE investors to adopt terms from later SAFEs if those terms are more favorable. This protects early investors from being diluted by sweetheart deals to later investors.
Chicago Considerations:
Understanding dilution mechanics helps founders model cap table scenarios and make informed decisions about fundraising strategy.
Step 1: Determine Total Capital Raised on SAFEs
Sum all SAFE investments. Example: Raised $1.2M total across multiple SAFE investors, all with $10M cap and 20% discount.
Step 2: Identify Series A Terms
Series A occurs at $25M pre-money valuation, raising $7M at $32M post-money valuation.
Step 3: Calculate SAFE Conversion
SAFEs convert at cap ($10M) since Series A valuation ($25M) exceeds cap:
Step 4: Calculate Series A Investor Ownership
Series A ownership = $7M ÷ $32M post-money = 21.875% of company
Step 5: Calculate Founder Ownership
Founder ownership = 100% - 12% (SAFE) - 21.875% (Series A) = 66.125%
Note: This simplified calculation excludes employee option pool (typically 10-15% at Series A), which would further dilute founders to approximately 56-59% ownership.
Many Chicago startups raise SAFEs at different stages with varying caps. Example scenario:
Dilution Calculation:
Post-money valuation calculation with multiple SAFE tranches becomes more complex and typically requires spreadsheet modeling or dedicated SAFE calculators.
Chicago's investment community has developed distinct norms around SAFE negotiations that reflect the region's values and market dynamics.
Chicago investors generally prefer using Y Combinator's standard SAFE documents with minimal modifications. Founders who propose heavily negotiated or non-standard terms risk signaling inexperience or creating friction that delays closes.
Standard Chicago SAFE Structure:
Terms Chicago Investors May Request:
Terms Founders Should Resist:
Party rounds—fundraising from numerous small investors without a clear lead—are viewed skeptically by Chicago's institutional investor community. While coastal markets sometimes celebrate "oversubscribed" party rounds as validation, Chicago investors interpret them as red flags:
Chicago Best Practice: Raise from 3-8 investors with one clear lead (largest check, most engaged, strongest value-add). This structure provides capital while demonstrating institutional validation.
Understanding individual investor philosophies helps founders target the right partners and structure appropriate terms.
MATH Venture Partners focuses on Midwest B2B SaaS and fintech startups with emphasis on capital efficiency and path to profitability.
SAFE Approach:
Hyde Park Angels is Chicago's premier angel network with 100+ members investing in early-stage Midwest startups across sectors.
SAFE Approach:
Pritzker Group Venture Capital backs category-defining companies across consumer, enterprise software, fintech, and healthcare sectors.
SAFE Approach:
Founded by Groupon's Eric Lefkofsky and Brad Keywell, Lightbank invests in Chicago and Midwest technology companies across stages.
SAFE Approach:
Chicago Ventures invests in seed-stage Midwest startups with focus on B2B software, healthcare IT, and fintech.
SAFE Approach:
Even with standard documents, founders make strategic and tactical errors that compromise future fundraising or create unnecessary dilution.
Some founders continuously raise small SAFE tranches, accumulating $2M-$3M+ across multiple investors at various caps. This creates several problems:
Solution: Limit SAFE fundraising to 2-3 discrete rounds (pre-seed, bridge if needed, seed) with clear milestones justifying each raise. Plan to raise priced Series A once you reach $1M+ ARR and clear product-market fit.
Some founders reference San Francisco benchmarks to justify $8M-$10M pre-seed caps or $15M-$20M seed caps in Chicago. This strategy backfires:
Solution: Use Chicago-specific benchmarks: $3.5M-$6M (pre-seed), $8M-$12M (seed). Accept that lower caps paired with lower burn rates often result in similar dilution to coastal equivalents with higher caps and higher burn.
Some founders, often influenced by startup podcasts or coastal fundraising stories, attempt to negotiate complex SAFE terms or create hybrid instruments. This approach rarely succeeds in Chicago:
Solution: Use standard Y Combinator SAFE documents with standard terms. Save negotiating leverage for truly material terms like valuation cap, not esoteric provisions.
Many founders sign SAFEs without modeling dilution scenarios or understanding how multiple SAFE tranches interact at conversion.
Solution: Build detailed cap table models showing ownership after SAFE conversion under various Series A scenarios. Use tools like Carta or dedicated SAFE calculators to understand dilution before signing terms.
Some founders raise SAFEs without articulating what metrics they'll achieve before Series A. This creates problems:
Solution: Before raising SAFEs, define 3-5 key milestones you'll achieve before Series A (revenue targets, customer logos, product development goals, team building). Communicate these to SAFE investors and report progress quarterly.
While SAFEs dominate Chicago pre-seed and seed fundraising, certain scenarios warrant priced equity rounds even at early stages.
Effective negotiation requires understanding Chicago investor psychology and regional norms.
Reference similar Chicago companies at similar stages. Chicago investors respond to regional benchmarks more than coastal comparisons:
"We're raising at a $10M cap, which aligns with Chicago seed-stage fintech companies at similar ARR levels. Recent comparables include [Chicago Company A] and [Chicago Company B] at $9M-$11M caps."
Frame fundraising around Chicago's cost advantages:
"This $1.5M raise provides 18 months of runway in Chicago, whereas coastal equivalents would need $2.5M-$3M for similar runway. Our capital efficiency is a strategic advantage that improves Series A dynamics."
Chicago investors follow credible leads. Secure one strong institutional investor, then use that validation to fill the round:
"[Respected Chicago VC] is leading our round at a $10M cap. We have $400K remaining allocation for strategic angels who can help with customer development and recruiting."
Chicago investors want to understand the journey from SAFE to Series A:
"This $1.5M seed round funds 18 months of operations. We'll use it to grow from $400K to $1.8M-$2M ARR, reaching the metrics required for $20M-$25M Series A. Our milestones include [3-4 specific goals]."
Chicago investors value operational support and customer access:
"Beyond capital, we're seeking investors who can facilitate introductions to Fortune 500 pilot customers, particularly in [industry vertical]. We're reserving allocation for investors who can accelerate our GTM strategy."
Let's walk through specific scenarios Chicago founders encounter.
Situation: First-time founders building payment infrastructure for SMBs. No revenue, MVP in pilot with 5 customers.
SAFE Terms:
Series A Scenario: 18 months later, company reaches $800K ARR, raises Series A at $22M pre-money, $8M round size, $30M post-money.
Dilution Calculation:
Key Insight: Founders retain strong ownership (46%) despite two funding rounds, demonstrating how Chicago's capital-efficient model benefits founder equity.
Situation: Experienced founders building clinical decision support software. $350K ARR from 3 health system pilots.
SAFE Terms:
Series A Scenario: 20 months later, company reaches $2.2M ARR, raises Series A at $35M pre-money, $12M round size, $47M post-money.
Dilution Calculation:
Key Insight: Larger seed round creates more dilution, but founders still retain control. Healthcare's longer sales cycles and regulatory requirements justify higher capital raise.
Situation: Logistics SaaS company that raised multiple SAFEs over 18 months.
SAFE History:
Series A Scenario: Company reaches $1.5M ARR, raises Series A at $28M pre-money, $10M round size.
Dilution Calculation (simplified):
Key Insight: Multiple SAFE tranches create substantial dilution (nearly 30% before Series A). Founders should limit SAFE rounds and transition to priced equity once traction justifies it.
SAFE terms you negotiate today directly impact Series A dynamics 18-24 months later.
Series A investors evaluate SAFE structure as signal about founder sophistication and company trajectory:
Chicago Series A investors typically expect founders to retain 60-75% ownership (fully diluted) after all SAFE conversions and before Series A. This ownership level indicates:
If SAFE conversions reduce founders below 55-60% before Series A, you may face:
SAFEs have become the dominant early-stage fundraising instrument in Chicago's startup ecosystem, offering founders speed, flexibility, and deferred valuation negotiations that align with the region's emphasis on demonstrated traction over narrative-driven fundraising. However, SAFE terms—valuation caps, discounts, pro rata rights—directly impact founder dilution, Series A dynamics, and long-term cap table health.
Chicago-specific valuation benchmarks reflect the Midwest's distinct investment culture: pre-seed caps of $3.5M-$6M and seed caps of $8M-$12M sit 30-35% below coastal equivalents, but this regional pricing dynamic creates strategic advantages. Lower caps paired with Chicago's 40-50% cost advantage versus San Francisco create extended runway, more learning cycles, and realistic Series A valuation targets that reduce down round risk.
Successful Chicago founders approach SAFEs with the same operational discipline that characterizes the region's business culture. They limit SAFE rounds to 2-3 discrete raises tied to clear milestones, use standard Y Combinator documents to minimize legal costs and negotiation friction, model dilution scenarios across multiple Series A outcomes, and select investors who provide strategic value beyond capital—customer introductions, recruiting assistance, operational mentorship.
Whether you're raising your first pre-seed SAFE from Hyde Park Angels, negotiating seed terms with MATH Venture Partners, or structuring a bridge round before Series A, understanding SAFE mechanics and Chicago's investment norms is fundamental to building a healthy cap table that supports your journey from founding to exit.
Ready to model your SAFE terms and understand dilution scenarios? ICanPitch provides Chicago founders with SAFE calculators, cap table modeling tools, and fundraising resources specifically designed for the Midwest startup ecosystem. Calculate your dilution, compare scenarios, and structure SAFE terms that position you for Series A success.
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