SAFE Investing: Startup Financing 101

SAFE Investing

  • Simple Agreement for Future Equity
  • It is only a five page document that was created for the purpose of simple seed investment on startups
  • A financing tool that provides a lower cost and speedier alternative to convertible debt financing.
  • This is the right to obtain a preferred stock of a firm
  • Created by Y Combinator
  • 4 variations of SAFE: cap and no discount, discount and no cap, cap and discount, no cap or discount
  • If there is an acquisition or IPO the SAFE holder can get money back or convert holdings to common stock
  • There is a SAFE MFN option meaning that if a holder gets certain terms and later investors get better terms, the MFN kicks in and the SAFE holder will get the terms amended to the better terms.
  • Still covered by securities laws
  • It goes on your cap table just like a warranty or option
  • SAFE only allows for conversion to the next round of financing
  • SAFE allows for a one time payout or conversion of equity
  • SAFE is not a debt instrument and is instead defined as a type of warranty and therefore has no interest rate
  • Also has no maturity date
  • The most alike financing tool to SAFE is a convertible note but a convertible note is a debt instrument with a maturity date and interest rate while SAFE has none of that, it is a simpler financing tool.
  • Websites I used:

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s