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. As the security of a single flexible document without many trading conditions, start-ups and investors save money in legal fees and reduce the time spent negotiating investment terms. Startups and investors generally have only one point to negotiate: the valuation cap. Since a safe does not have an expiry date or maturity date, no time or money should be spent on extending maturities, reviewing interest rates or otherwise. 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. The new safe doesn`t change two basic features that we still find important to startups: our updated safes are therefore “post-money” safes. By “post-money” we say that the safe owner is measured by post, all the safe money is accounted for – which is now his own trick – but before (before) the new money in the price cycle that transforms and dilutes the coffers (normally series A, but sometimes the Seed series). The post-money safe has what we think is a great advantage for founders and investors – the ability to calculate immediately and exactly how much property the company has been sold. For the founders, it is essential to understand how much dilution is caused by each chest they sell, just as it is fair for investors to know how much they have bought ownership of the business. 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. 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.