The YC Pitch: Fundraising Made Simple

Y Combinator’s Startup School is one of the best free resources for new founders. It teaches you how to refine your idea, talk to users, and raise capital with confidence. But when it comes to fundraising, the message is almost too simple: just start signing SAFEs, collect checks, and build your company.

It is an empowering message and it works to get founders moving. The problem is that it quietly skips over one of the most important parts of the process: federal securities law. Every time a founder accepts an investment, even through a SAFE, they are technically selling securities. That means the transaction must either be registered with the SEC or fit under an exemption. YC rarely mentions this step, and it is not optional.

The Hidden Step Behind Every SAFE

When you take investor money, you are not just closing a deal, you are conducting a securities offering. The default path for most early-stage startups is to rely on Regulation D, which provides exemptions from SEC registration. Within Regulation D, the two most common exemptions are:

• Rule 506(b) – You can raise from an unlimited number of accredited investors and up to 35 non-accredited investors, but you cannot publicly advertise your raise.
• Rule 506(c) – You can publicly advertise your raise, but all investors must be accredited and you must take reasonable steps to verify it.

Each version has different requirements, and neither is as simple as just sending out a SAFE link. Founders who skip this step often discover later that they technically violated securities law even if unintentionally.

What YC Glosses Over

Startup School tells founders they can raise quickly and cheaply without lawyers, and that is true in one sense: you can. But it also omits several important compliance items that every founder should know:

• Form D Filing: You must file Form D with the SEC within 15 days of the first sale of securities.
• Blue Sky Filings: Many states require additional filings and modest fees depending on investor location.
• General Solicitation Rules: If you post about your raise online, it counts as general solicitation and requires a 506(c) exemption.
• Accredited Investor Verification: For public raises, you must verify investor status using documentation or a third-party service.
• Recordkeeping: Keep signed SAFEs, investor data, and proof of accreditation organized in one secure folder.

These steps are not heavy burdens, but ignoring them can create expensive problems later. Many founders have been forced to rescind investments or amend filings once real investors begin diligence for a priced round.

Why It Matters

It is easy to think that compliance can wait until later. But a missed filing can follow your company for years. If your early round violates securities law, later investors may ask you to clean it up before they wire funds. Worse, some investors may demand their money back if your offering was not properly exempt.

Compliance also builds credibility. Serious investors expect you to know how your round is structured and whether it is compliant. Understanding the basics of Regulation D and having a clear paper trail signals that you are a responsible founder, not just an idea person.

How to Do It Right (Without Killing Momentum)

Founders often think legal compliance means slowing down. It does not have to. You can move quickly and stay compliant by following a few simple steps:

1. File Form D after the first investment is accepted.
2. Choose your exemption early (506b for private raises, 506c if you want to advertise).
3. Keep your investor list organized with dates, amounts, and SAFE versions.
4. Use trusted templates, but have an attorney or syndicate lead review your setup.
5. Do not post about your raise publicly unless you are sure your exemption allows it.

These steps take less than a day to complete and can save you months of cleanup down the road.

The Bottom Line

Y Combinator is right about one thing: founders should move fast. But fast and careless are not the same thing. A quick filing and a few hours of legal guidance can protect you from years of headaches later.

Fundraising is not just storytelling, it is also compliance. The best founders understand both.

If you are planning a SAFE round or want to make sure your raise is structured and filed correctly, Velocity Startup can help. We build compliant SPVs, advise on legal structure, and guide founders through the entire capital-raising process.

Reach out at Velocity Startup to discuss how we can help you raise capital the right way.