Safe Simple Agreement Future Equity
Y Combinator, a well-known technology accelerator, created the SAFE rating in 2013 (simple agreement on future capital) and uses it to finance most start-ups participating in three-month development meetings. Since 2005, Y Combinator has funded more than 1,000 startups, including Dropbox, Reddit, WePay, Airbnb and Instacart. 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 are important to startups, but if you have specific questions about your SAFE agreements or how to enter into these types of agreements, contact Parsa Law, Inc. Unlike converted 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. 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. 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.” For a growing start-up, the company will probably find more money. As a start-up investor, I`m not interested in being reimbursed. The risk associated with a start-up is high, so I hope that in the event of a high risk, there will be a potential for a strong upward trend. That is why I would like my SAFE to be “converted” to equity at a later date. Basically, as soon as someone decides to invest in the company in a “price cycle”, my SAFE becomes shares of the company. Although the safe may not be suitable for all financing situations, conditions must be balanced with the interests of the start-up and investors in mind. As with the original safe, there are always trade-offs between simplicity and completeness, so that while not all Edge cases are addressed, we believe that the safe covers the most relevant and common issues. Both parties are encouraged to have their lawyers` safes checked if they wish, but we believe it provides a starting point that can be used in most situations without change.