Eric Perlmutter-Gumbiner

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Should We Be Practicing SAFE Investments?

January 8, 2016Article

In the world of startups, innovation is king. That extends to innovative methods of financing. While convertible notes have long been the preferred method of fundraising for both investors and early stage startup companies, Y Combinator’s SAFE (Simple Agreement for Future Equity) offers a streamlined, innovative option for seeding companies. But is a SAFE ideal for everyone?

In a standard SAFE, the investor and the company agree on a valuation cap and mutually sign and date a SAFE. Then, the investor sends his or her money to the company. After that, nothing happens until a specific triggering event (i.e., an equity financing round, liquidation, or dissolution) converts the investment into equity. One negotiable term, five pages, and the deal is done. Other versions of the SAFE are available for those who would rather negotiate the investor discount, or would prefer to negotiate both the valuation cap and the discount. There is also a most favored nations version for those that want to make sure they remain on par with other investors. In addition to being simpler to negotiate than convertible notes, a SAFE does not function as a debt instrument. 

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