Simple Agreement Of Future Equity

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.” 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. SAFE agreements are a relatively new type of investment created by Y Combinator in 2013. These agreements are concluded between a company and an investor and create potential future capital in the company for the investor in exchange for immediate money to the company. SAFE turns into equity in a subsequent funding cycle, but only if a specific trigger event (as described in the agreement) takes place. SAFE is a kind of warrant that gives investors the right to obtain shares of the company, usually preferred shares if and when there is a future valuation event (i.e. when the company collects “cheap” equity next year, is acquired or it files an IPO). 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. At the end of 2013, Y Combinator published the Simple Agreement for Future Equity (“SAFE”) investment instrument as an alternative to convertible debt. [2] This investment vehicle has become popular in both United States.