Building your Future Today

S.a.f.e. Agreement

A SAFE is a simple agreement with a document that helps startups avoid many of these problems. Unlike a change in sola, it is not debt and it does not come with interest or a due date. The valuation of the company is thus postponed to a later date, so that the founders are not required to accept the lower rating that is accompanied by a start-up capital financing cycle. A “SAFE” is an agreement between an investor and an entity that grants the investor rights to the company`s future equity, which are similar to a share warrant, unless a certain price per share is set at the time of the initial investment. The SAFE investor receives future shares in the event of an investment price cycle or liquidity event. SAFEs are supposed to offer start-ups a simpler mechanism to apply for upfront financing than convertible bonds. Using a SAFE contract can be an advantageous way to finance a start-up, but it may not be the right option for any business. Startup creators should explore all their options and consider consulting an expert before entering into a financing agreement. Y Combinator, a well-known technology accelerator, created the SAFE rating in 2013 (simple agreement on future capital) and uses it to finance most start-ups participating in three-month development meetings. Since 2005, Y Combinator has funded more than 1,000 startups, including Dropbox, Reddit, WePay, Airbnb and Instacart. To address these issues, Y Combinator introduced the idea of safe (Simple Agreement for Future Equity). A safe is an investment contract that not only simplifies the conditions for new startups, but also helps them achieve slightly better terms than with traditional financing opportunities.

At the end of 2013, Y Combinator published the Simple Agreement for Future Equity (“SAFE”) investment instrument as an alternative to convertible debt. [2] This investment vehicle is now known in the U.S. and Canada because of its simplicity and low transaction costs. However, as use is increasingly frequent, concerns have arisen about its potential impact on entrepreneurs, particularly where several SAFE investment cycles take place prior to a private equity cycle[4] and potential risks to un accredited crowdfunding investors who could invest in the SAFes of companies that realistically, never receive venture capital financing and therefore never convert to equity. [5] Indeed, even some experienced angel investors are less interested in the terms of sale than in the brilliance of the business concept, the ability of the founders to implement their plan and the market growth potential for the company`s product or service. . For more information on SAFE securities, see the SEC Investor Bulletin. For the latest investor alerts and other important information about FINRA investors, sign up for Investor News. SAFEs have some common notions that can change the way they are converted into company shares. The four main terms I would go are discounts, valuation caps, most preferred national rules and proportional fees With the hypothetical scenario from above, your heading table will look like this after a VC has invested $2 million, and you have a 20K SAFE from Dorm Room Fund that has no discount or valuation cap. Our first safe was a “pre-money” safe, because at the time of its launch, startups collected smaller sums of money before collecting a funding cycle (typically a Preferred Stock Round Series).