The valuation trap, the instrument that sidesteps it and the SA gap you need to plan around. If you have some early traction but need more capital to build proof, you’re likely to hit the same wall every pre-revenue founder faces: An investor asks what the business is worth, and any number you give is made up.

Keet van Zyl is co-founder of Knife Capital, one of SA’s most active venture firms, with exits to Visa, Uber Eats and Ticketmaster behind him. He’s blunt about where the SA pre-revenue market actually works and where it doesn’t.

The instinct is to negotiate a valuation. The smarter move at pre-revenue is to skip that fight entirely and use an instrument that converts to equity later, once a priced round sets the number for you.

“I don’t know how to value this business. Give me R1 million. With that, I’ll create proof points and raise a R10 million round. For your early risk, you get a discount on that valuation.”

Both instruments do the same core job: they let an investor put money in now without either of you agreeing on a valuation today. The money converts into equity later, at the valuation set by your next proper round.

A convertible note is debt that converts to equity. A SAFE (Simple Agreement for Future Equity) is a lighter, founder-friendly version pioneered by Y Combinator. For most pre-revenue SA founders, a SAFE is the simpler starting point. The point of both is the same: raise now, price later.

The early investor is taking more risk than whoever comes in at the priced round. The discount is how you pay them for it. When your next round sets a valuation, their early money converts at a reduced price — typically a 20% to 25% discount to that round.

So if your R10 million round values the business at a certain share price, the early backer’s R1 million converts as though they paid 20-25% less. They get more equity for the same money because they were there first.

The raise isn’t the goal. The proof is. 

Before you take a cent, be specific about what this capital will prove, because that’s what unlocks the priced round the instrument converts into.

SA doesn’t have a single standardised set of early-stage documents the way the US does — every VC’s paperwork looks different. But you don’t need to draft from scratch and rack up legal fees on a R1 million raise.

Keet points founders to Y Combinator’s open SAFE documents as a starting template, and to Digital Collective Africa for SA-specific term sheets and due diligence docs. Start from those, then have a lawyer adapt them; far cheaper than originating the whole thing.

You raise the capital you need to build proof, without giving away a chunk of your company at a valuation invented under pressure. The hard number gets set later, by a priced round, when the business has earned it.

The structure takes a conversation and a template to set up. It saves you the equity you’d have lost guessing at a valuation far too early.

This is one piece of The SA VC Funding Landscape, Keet’s full masterclass inside the Founder Collab. The full session is the most candid look at how SA venture capital actually works:

You’ll also get access to 40+ other masterclasses from SA founders and operators on sales, UX, paid media, automations and more inside The Founder Collab.

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