PICKING YOUR POISON: A PRACTICAL GUIDE TO PRICED ROUNDS, SAFES, AND CONVERTIBLE NOTES IN HEALTH TECH ANGEL INVESTING

DISCLAIMER: The views and opinions expressed in this essay are solely my own and do not reflect the views, opinions, or positions of my employer or any organization with which I am affiliated.

Abstract

This essay examines the three primary investment instruments available to health tech angel investors: priced equity rounds, Simple Agreements for Future Equity (SAFEs), and convertible notes. Each mechanism presents distinct advantages and trade-offs that become particularly pronounced in the healthcare technology sector due to longer development cycles, complex regulatory pathways, and significant capital requirements.

Key points covered:

- Priced equity rounds provide immediate ownership and clarity but require extensive legal work and negotiation

- SAFEs offer simplicity and speed but can create misalignment between founders and early investors

- Convertible notes balance investor protections with operational efficiency but introduce debt dynamics

- Health tech specific considerations including FDA approval timelines, reimbursement uncertainty, and clinical validation requirements

- Practical scenarios demonstrating when each instrument makes strategic sense

- Common pitfalls and negotiation strategies for angel investors

Table of Contents

Introduction

Priced Equity Rounds: The Gold Standard with a Price Tag

SAFEs: The Darling of Silicon Valley

Convertible Notes: The Middle Ground

Health Tech Specific Considerations

When Each Instrument Makes Sense

Common Mistakes and How to Avoid Them

Conclusion

INTRODUCTION

So you’re writing checks into health tech startups and someone just sent you their term sheet or investment docs and you’re staring at it wondering whether you should be excited about that SAFE with a twenty million dollar cap or concerned that they’re trying to raise a priced round at a fifteen million pre-money valuation when they’ve got nothing but a PowerPoint and a partnership with a single community health center. Welcome to one of the more consequential decisions you’ll make as an angel investor, and one that doesn’t get nearly enough attention in all those Medium posts about how to build a killer portfolio.

The instrument you choose or accept isn’t just about the math, although the math definitely matters and we’ll get into that. It’s about alignment, it’s about what happens when things go sideways, and it’s about whether you’ll have any meaningful say in the company’s future or whether you’ll just be along for the ride hoping that Series A investors don’t totally screw you with their participation rights and liquidation preferences. In health tech specifically, where the journey from idea to revenue can take five to seven years instead of the two to three you might see in pure software plays, these decisions compound in weird and often painful ways.

I’ve seen brilliant companies raise on instruments that made zero sense for their stage and trajectory, and I’ve seen founders make choices that seemed smart at the time but created cap table disasters that ultimately killed their ability to raise follow-on funding. I’ve also personally made the mistake of accepting whatever docs the lead investor wanted to use without really thinking through whether those docs served my interests as a small check angel investor, and I’ve paid for that mistake when those companies had down rounds or complex recaps that left me with almost nothing despite the company technically being worth more on paper.

PRICED EQUITY ROUNDS: THE GOLD STANDARD WITH A PRICE TAG