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Safe Agreement For Future Equity

16 diciembre, 2020

The new safe does not change two basic functions that we consider important for startups: to complicate things a bit, a SAFE sometimes has a discount. Since the SAFE will be in front of each investor later, the SAFE investor may want the SAFE to be converted into equity into a discount on the subsequent financing cycle. Discounts are usually between 10% and 30%. As an illustration, I`ve modeled what 50% off will look like. Instead of buying shares for $1.00, the safe bearer receives shares for $0.50. Here`s an example: unlike convertable 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. A largely erroneous belief is that SAFes are standardized. Although YCombinator, the seed accelerator that created SAFEs, has published standardized versions of the agreements on its website, these documents can and will be modified by issuers. A lawyer is in the best position to check SAFE to advise the investor on the effects of the specific document, for example.B. (1) conversion conditions, including the amount and conditions of conversion and probability of conversion; (2) the company`s repurchase rights and whether the company may be able to prevent the conversion of the investment in exchange for the investor`s purchase of SAFE; (3) dissolution rights in the event of a bankruptcy filing of the company prior to the transformation; and (4) voting rights, if they exist, are granted to the investor.

There are four versions of the new post-money safe as well as an optional letter of receipt. As a start-up, you come in agreement with other companies, suppliers, contractors, investors and many others. A lesser-known agreement is the Simple Agreement for Future Equity (SAFE). These agreements can be important for the success of a startup, but not all SAFE agreements are equal. 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. In addition, a SAFE may be on hold indefinitely, which would prevent the investor from making a profit from the investment. Since FASCs should only be converted in the event of specific events, an investor should analyze the risk that events will not occur in light of the company`s circumstances.

If an entity generates enough capital not to require additional capital financing cycles, the amount invested under SAFE can never be converted into equity. Mohsen Parsa, a los Angeles start-up lawyer, helps clients understand SAFE agreements, design comprehensive SAFE agreements for clients, and provide general guidance and guidance to these types of agreements so that startup clients can make the best short- and long-term decisions. Here`s a look at SAFE agreements and why they`re important to startups, but if you have specific questions about your SAFE agreements or how to conclude these types of agreements, contact Parsa Law, Inc. SAFE agreements have a lot to offer. But what benefits the startup, such as the lack of standardization, can also hurt the startup if the contract is not developed and negotiated in a professional and strategic manner. If you are a start-up and looking for alternative and creative ways to find investors, contact Mohsen Parsa today. For a growing start-up, the company will probably find more money. As a start-up investor, I`m not interested in being reimbursed.