Safe Agreement Example

In 2013, startup accelerator Y Combinator (a Silicon Valley accelerator) introduced an instrument known as a Simple Future Capital Agreement (SAFE). It was created as a simpler alternative to traditional convertible bonds. It allows startups to easily structure their upfront capital assets, with no maturities or interest rates. Things to watch out for. When using a safe, there are things to consider (both for investors and for companies): since repayment is generally not necessary, investors may never transform SAFE. 2. Safe holders are not shareholders (up to SAFE conversions) and therefore do not have the usual shareholder rights. If the investor wants certain rights (for example. B to participate in future capital increases or information rights), a separate agreement must be reached. 3.

As SAFE is relatively new to the Australian market, it may lack familiarity with the document used and the legal jargon. 4. Dividends are not paid to safe holders. 5. There is no interest on investments, which can result in lower long-term investment yields relative to certain convertible debt bonds. 6. If the company issues a large number of SAFE before a capital increase, it may result in significant dilution of existing shareholders once SAFE has been converted. Since the conversion depends on the price of the future capital acquisition, it may be more difficult to accurately predict the amount of dilution. Note: In this example, we used the SAFE: Valuation Cap, No discount used.

SAFThe early stages of fundraising save investors and startups time and money they would otherwise spend to develop unique legal agreements. It is a brief five-page document that describes all the details. Evaluation ceilings are the only negotiable detail in a SAFE. Whether you`re using the safe for the first time or are already familiar with safes, we recommend reading our Safe User Guide. The Safe User Guide explains how the safe converts with sample calculations, as well as other details on the secondary letter pro-rata, explanations of other technical changes we made to the new safe (for example. B the language of tax processing) and suggestions for optimal use. There are four versions of the new post-money safe as well as an optional letter of receipt. Different types of safe The conditions of a SAFE generally differ between the following headings: 1. Valuation Cap A Valuation Cap refers to the maximum valuation at which the cash investment is converted into shares. This is a favourable provision for investors, as it protects the investor from obtaining fewer shares when the valuation of the company increases significantly. If z.B. a SAFE contains an valuation ceiling of USD 3 million and the company makes a capital increase for a valuation of USD 5 million, the SAFE will be converted on the basis of a valuation of USD 3 million.