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: http://www.spitzbusinesslaw.com/blog/safe-a-new-financing-tool-for-startups/ https://shockwaveinnovations.com/2013/12/21/reviewing-the-new-safe-investment-instrument/ https://blog.indinero.com/seed-investment-7-ways-to-compare-safe-to-convertible-notes/
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