Valuation Simple Agreement For Future Equity

In addition to the absence of an valuation requirement, such as convertible bonds, safe deal terms may include valuation caps and share price discounts to give equity investors (CFs) a lower price per share than subsequent investors or venture capitalists in this liquidity event. This is fair, because previous investors take more risks than subsequent investors to pursue the same equity. 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. 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.“ Another new function of the safe concerns a „prorgula“ right. The original safe required the company to allow holders of safes to participate in the financing round after the financing round in which the safe was converted (for example. B if the safe is converted into series group preferred actuators, a secure holder – now holder of a Series A preferred share subseries – is allowed to acquire a proportionate portion of the Series B preferred share).

While this concept is consistent with the original concept of safe, it made no sense in a world where safes were becoming independent funding cycles. Thus, the „old“ pro-rata right is removed from the new safe, but we have a new model letter (optional) that offers the investor a proportional right in the preferential financing of Series A on the basis of the converted safe property of the investor, which is now much more transparent. Whether a start-up and an investor enter the letter with a safe will now be a choice that the parties will choose, and this may depend on a large number of factors. Factors to consider can (among other things) the amount of the safe purchase and the amount of future dilution that proportional duty can cause to the founders – an amount that can now be predicted with much greater accuracy if post-money safes are used. As soon as the terms are agreed and the SAFE is signed by both parties, the investor sends the agreed funds to the company. The entity uses the funds in accordance with the applicable conditions. The investor receives equity (SAFE preferred shares) only when an event mentioned in the SAFE agreement triggers the conversion. The exact conditions of a SAFE vary. However, the basic mechanics[1] 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 deferred