2 minute watch | April.06.2026
Nick Feldman and Cody Peterson, partners in Orrick's Technology Companies Group, walk through what happens when a SAFE financing gets more complicated and how founders can evaluate investor rights requests before signing. Discover:
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Nick: We talked about how the SAFE [simple agreements for future equity] is great for particularly early-stage startups, but also in bridge situations because it is simple, quick, easy and market accepted. Are there situations where it becomes less quick and easy, where investors may expect more rights beyond the short SAFE document?
Cody: Yeah, there are. Some institutional investors might be looking for a side letter that has some additional rights, maybe information rights or management rights letters. The simplest request there is pro rata. The YC website has a form pro rata rights agreement. When we're talking about pro rata, we're talking about an investor's right to invest in the next round of financing. Presumably, if you're raising a SAFE and a pre-seed round, we're talking about an investor's right to also invest at the series seed when that happens, that makes a lot of sense. That's totally reasonable. Early-stage investors want to be able to invest additional capital in the companies that are doing well. From a company perspective, I think it very importantly limits that pro rata right to only the next round of financing.
Have you seen any other kind of requests or things that maybe a founder might want to steer clear of when raising a SAFE at a pre-seed?
Nick: There are particularly sophisticated investors and VCs who are leading these SAFE financings – they will stop short of a full-blown equity financing set of rights, but they will need or want a number of different things.
Management rights are one that they need for fund compliance purposes – generally fairly innocuous, but important to the fund. And others will want more “major investor style rights”: access to financials. When you have things like board observer rights, those are hard to rein back in. Controlling things like your boardroom and being forward-looking about the rights you grant is very important.
Cody: Can you talk a little bit more about that? What is a board observer right? And what are the things that a founder or CEO should be thinking about when granting board observer rights?
Nick: Board observer rights are the right for an investor to observe the board. They're entitled to receive board materials and attend board meetings in a non-voting capacity. Importantly, because these observers are not on the board, they are not bound by the same confidentiality obligations and fiduciary duties that directors are bound by. But it's somebody who's going to be involved with the company at a deeper level than just at the stockholder level.