Simple Agreement For Future Equity Investments
The exact conditions of a SAFE vary. However, the basic mechanics are that the investor makes available to the company a certain amount of financing at the time of signing. In return, the investor will later receive shares in the company in connection with specific contractual liquidity events. The main trigger is usually the sale of preferred shares by the company, usually as part of a future fundraising cycle. Unlike direct equity acquisition, shares are not valued at the time of SAFE signing. Instead, investors and the company negotiate the mechanism with which future shares will be issued and defer actual valuation. These conditions generally include an entity valuation cap and/or a discount on the valuation of the shares at the time of triggering. In this way, the SAFE investor participates above the company between the signing of safe (and the financing provided) and the triggering event. At Dorm Room Fund, we invest with unlimited SAFEs at no discounts, but with an MFN clause. This means that when converted into equity, founders end up having more of the business than if there was a cap or discount. If new investors buy shares for $1.00, it`s also Dorm Room Fund. If you have questions about simple future investment agreements or other equity financing issues, lawyers from Parker McCay`s Corporate and Commercial Lending Departments will be available.
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. 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 capital in the company for the investor in exchange for immediate money to the company. SAFE turns into equity in a subsequent funding cycle, but only if a specific trigger event (as described in the agreement) takes place. Unlike the converted debt, there is no debt with a SAFE.
There is also no maturity date, which means that investors have to wait indefinitely before they can get their hands on the equity they have purchased, if they do. Crowdfunding generally refers to a method of financing that allows money to be found through relatively small individual investments or contributions from a large number of people.