Safe Agreement Meaning
SAFE is an acronym for “simple agreement on future capital” and was created by the Silicon Valley Accelerator Y Combinator as a new financial instrument to simplify seed investment. In essence, a SAFE is a warrant to buy shares in a future price round. There are four versions of the new post-money safe as well as an optional letter of receipt. 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.” 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. In our experience, in a convertible debt contract, there are usually 2x payment provisions that can still be written in SAFE agreements. Both of these options have seed investment benefits in this category, which ultimately depend on your preferences. Our first safe was a “pre-money” safe, because at the time of its launch, startups collected smaller sums of money before collecting a funding cycle (typically a Preferred Stock Round Series).
The safe was a quick and simple way to get the first money into the business, and the concept was that safe owners were only early investors in this future price cycle. But fundraising, staged early on, grew in the years following the introduction of the initial safe, and now startups are raising far more money than the first “seeds” funding cycle. While safes are used for these seed rounds, these towers are really better regarded as totally separate financing, instead of turning “bridges” into subsequent price cycles.