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.” Unlike a convertible loan, a SAFE is not a loan; It`s more like an arrest warrant. In particular, no interest or due date is paid and SAFes are therefore not subject to the rules under which debts may be in many jurisdictions. This simplicity is the main motivation of a SAFE. “Safes should work in the same way as convertible notes, but with fewer complications,” says startup accelerator Y Combinator. 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.
As the security of a single flexible document without many trading conditions, start-ups and investors save money in legal fees and reduce the time spent negotiating investment terms. Startups and investors generally have only one point to negotiate: the valuation cap. Since a safe does not have an expiry date or maturity date, no time or money should be spent on extending maturities, reviewing interest rates or otherwise. 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). The safe was a quick and simple way to get the first money into the business, and the concept was that safe owners were only early investors in this future price cycle. But fundraising, staged early on, grew in the years following the introduction of the initial safe, and now startups are raising far more money than the first “seeds” funding cycle. While safes are used for these seed rounds, these towers are really better regarded as totally separate financing, instead of turning “bridges” into subsequent price cycles. 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. There are four versions of the new post-money safe as well as an optional letter of receipt. If I invest $20,000 through a safe, the company will use that money to set up the business. But 20K doesn`t go that far. As soon as they progress, they may want to find more money. Suppose they find an investor who wants to buy 20% of the business for $2 million. If 20% of the business is worth $2 million after investing, that means the valuation after the money is $10 million. The new safe does not change two fundamental characteristics that we consider important to startups: if the company fails, the remaining money will be returned to investors.