Another new function of the safe concerns a “prorgula” right. The original safe required the company to allow holders of safes to participate in the financing round after the financing round in which the safe was converted (for example. B if the safe is converted into series group preferred actuators, a secure holder – now holder of a Series A preferred share subseries – is allowed to acquire a proportionate portion of the Series B preferred share). While this concept is consistent with the original concept of safe, it made no sense in a world where safes were becoming independent funding cycles. Thus, the “old” pro-rata right is removed from the new safe, but we have a new model letter (optional) that offers the investor a proportional right in the preferential financing of Series A on the basis of the converted safe property of the investor, which is now much more transparent. Whether a start-up and an investor enter the letter with a safe will now be a choice that the parties will choose, and this may depend on a large number of factors. Factors to consider can (among other things) the amount of the safe purchase and the amount of future dilution that proportional duty can cause to the founders – an amount that can now be predicted with much greater accuracy if post-money safes are used. Another term that can come with a SAFE is called the rating cap. This is another way for the SAFE investor to get a better price per share than a later investor. If your business ends up finding money for an valuation above the “cap,” then the SAFE investor can convert it into a share price corresponding to the ceiling. Downstairs, I modeled what a $5 million valuation cap would be.
In this case, the SAFE investor gets shares at $0.63, instead of receiving shares for $1.00. SAFE agreements have a lot to offer. But what benefits the startup, such as the lack of standardization, can also hurt the startup if the contract is not developed and negotiated in a professional and strategic manner. If you are a start-up and looking for alternative and creative ways to find investors, contact Mohsen Parsa today. Paul Graham, one of America`s leading angel investors and founder of Y Combinator, wrote this in 2009: 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.” With participation rights or participation rights, investors can invest additional funds to maintain their ownership during equity financing after the financing that initially converted SAFE into equity.