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December 16, 2020

S.a.f.e. Agreement

Filed under: Uncategorized — Mark Baker @ 6:45 am

Using a SAFE contract can be an advantageous way to finance a start-up, but it may not be the right option for any business. Startup creators should explore all their options and consider consulting an expert before entering into a financing agreement. A “SAFE” is an agreement between an investor and an entity that grants the investor rights to the company`s future equity, which are similar to a share warrant, unless a certain price per share is set at the time of the initial investment. The SAFE investor receives future shares in the event of an investment price cycle or liquidity event. SAFEs are supposed to offer start-ups a simpler mechanism to apply for upfront financing than convertible bonds. 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. A SAFE is a simple agreement with a document that helps startups avoid many of these problems. Unlike a change in sola, it is not debt and it does not come with interest or a due date.

The valuation of the company is thus postponed to a later date, so that the founders are not required to accept the lower rating that is accompanied by a start-up capital financing cycle. To address these issues, Y Combinator introduced the idea of safe (Simple Agreement for Future Equity). A safe is an investment contract that not only simplifies the conditions for new startups, but also helps them achieve slightly better terms than with traditional financing opportunities. Apart from Y Combinator, SAFE is tested and used by startups in the crowdfunding markets. In 2020, the number of non-convertible notes (for example. B SAFE and kiss notes) used by pre-financing companies is just as widespread (58%) The number of convertible bonds issued. If companies become more well known to SAFE from the beginning, this rather young security may have found its ideal niche in the offers of Title III, also known as crowdinvesting for all investors. There are four versions of the new post-money safe as well as an optional letter of receipt. “Don`t spend a lot of time dealing with the details of the terms of the agreement, especially if you start investing angels. That`s not how you win. When you hear people talking about a successful angel investor, they don`t say, “He has 4x of liquidation preference.” They say, “He invested in Google.” Startups are innovative ideas, but it takes money to get these companies off the ground.

For many startup creators, this is where trouble begins. Acquiring financial resources can be quite difficult and, in many cases, founding startups must accept unfavourable conditions to obtain the capital they need.

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