Simple Agreement Investor

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. Unlike a direct share purchase, shares are not valued at the time of signing the SAFE. Instead, investors and the company negotiate the mechanism by which future shares will be issued and postpone the actual valuation. These conditions typically include an entity valuation cap and/or a discount on the valuation of the shares at the time of the triggering event. In this way, the SAFE investor is insequential in the upward trend of the company between the date of signature of the SAFE (and the financing provided) and the trigger. At the end of 2013, Y Combinator published the Investment Instrument Simple Agreement for Future Equity (SAFE) as an alternative to convertible bonds. [2] Since then, this investment vehicle has become popular in both the United States and Canada,[3] due to its simplicity and low transaction costs.

However, as use has become increasingly frequent, concerns have been raised about the potential impact on entrepreneurs, particularly when multiple SAFE investment cycles are completed prior to an assessed capital cycle[4], as well as the potential risks for non-accredited crowdfunding investors who could invest in equity of companies that, realistically, will never receive venture capital funding and therefore never trigger a conversion into equity. [5] As a flexible, single-document guarantee with no many conditions to negotiate, startups and investors save money on attorney fees and reduce the time it takes to negotiate investment terms. Startups and investors usually have only one point to negotiate: the valuation cap. Since a vault does not have an expiry or maturity date, no time or money should be spent on renewing maturity dates, revising interest rates or other. It still allows fundraising in high definition. Startups can conclude with an investor as soon as both parties are ready to sign and the investor is ready to transfer money instead of trying to coordinate a single conclusion with all investors at the same time. Indeed, high-resolution fundraising can be much easier now, both founders and investors have more security and transparency about what each party gives and receives. For more information on SAFE securities, see the SEC Investor Bulletin. To get the latest Investor Alerts and other important information from FINRA investors, log in to Investor News. Another innovation of the safe concerns a “proportional” right..

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