Safe Simple Agreement For Future Equity

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] Another innovation in the safe is a „pro rata“ right. The original safe required the company to allow holders of safes to participate in the financing round after the financing round in which the safe was converted (for example. B if the safe is converted into series group preferred actuators, a secure holder – now holder of a Series A preferred share subseries – is allowed to acquire a proportionate portion of the Series B preferred share). While this concept is consistent with the original concept of safe, it made no sense in a world where safes were becoming independent funding cycles. Thus, the „old“ pro-rata right is removed from the new safe, but we have a new model letter (optional) that offers the investor a proportional right in the preferential financing of Series A on the basis of the converted safe property of the investor, which is now much more transparent. Whether a start-up and an investor enter the letter with a safe will now be a choice that the parties will choose, and this may depend on a large number of factors.

Factors to consider can (among other things) the amount of the safe purchase and the amount of future dilution that proportional duty can cause to the founders – an amount that can now be predicted with much greater accuracy if post-money safes are used. For a growing start-up, the company will probably find more money. As a start-up investor, I`m not interested in being reimbursed. The risk associated with a start-up is high, so I hope that in the event of a high risk, there will be a potential for a strong upward trend. That is why I would like my SAFE to be „converted“ to equity at a later date. Basically, as soon as someone decides to invest in the company in a „price cycle“, my SAFE becomes shares of the company. Some issuers offer a new type of security as part of some crowdfunding offers they have called safe. The acronym means Simple Agreement for Future Equity. These securities are risky and very different from traditional common shares. As the Securities and Exchange Commission (SEC) states in a new investor newsletter, despite its name, a SAFE offer cannot be „simple“ or „safe.“ Whether you`re using the safe for the first time or are already familiar with safes, we recommend reading our Safe User Guide. The Safe User Guide explains how the safe converts with sample calculations, as well as other details on the secondary letter pro-rata, explanations of other technical changes we made to the new safe (for example. B the language of tax processing) and suggestions for optimal use.

A largely erroneous belief is that SAFes are standardized. Although YCombinator, the seed accelerator that created SAFEs, has published standardized versions of the agreements on its website, these documents can and will be modified by issuers.