Purpose Of Simple Agreement For Future Equity

Unlike convertible bonds, there is no debt with a SAFE. There`s also no maturity date, which means investors have to wait indefinitely before they can get their hands on the equity they buy – if that ever happens. In addition to the absence of valuation requirements, such as convertible bonds. B the terms of the SAFE arrangement may include valuation caps and share price discounts in order to offer a lower price per share than subsequent venture capital (VVC) investors or acquirers at that liquidity event. This is fair, because previous investors take more risks than later investors by pursuing the same equity. Some issuers have offered a new type of collateral as part of some crowdfunding offerings – which they have called safe. The acronym stands for Simple Agreement for Future Equity. These securities carry risk and are very different from traditional common shares. As the Securities and Exchange Commission (SEC) states in a new Investor Bulletin, a SAFE offering, whatever its name, cannot be « simple » or « safe. » The startup (or any other company) and the investor enter into an agreement. You negotiate things like: As a start-up, you undoubtedly go through agreements with other companies, suppliers, contractors, investors and many others.

A lesser-known agreement is the Simple Agreement for Future Equity (SAFE). These agreements can be important for a startup`s success, but not all SAFE agreements are the same. SAFE agreements are a relatively new type of investment created by Y Combinator in 2013. These agreements are concluded between a company and an investor and create potential future equity in the company for the investor in exchange for immediate liquidity for the company. Safe converts into equity in a subsequent funding round, but only if a particular triggering event (described in the agreement) occurs. The exact conditions of a SAFE vary. However, the basic mechanism[1] is that the investor provides specific financing to the company when it is signed. In return, the investor will subsequently receive shares of the company related to certain contractual liquidity events. The primary trigger is usually the sale of preferred shares by the company, typically as part of a future price increase cycle. . .

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