SAFE bonds are convertible bonds, which means they can eventually be converted into shares. To understand how they work and what needs to be added in the agreement, you need to consider the following terms and considerations: There are four versions of the new post-money safe, as well as an optional cover letter. Paul Graham and yCombinator recently created and publicly recommended the use of SAFE rather than convertible bonds. More information about SAFE Can be found here: ycombinator.com/safe/. SAFERs streamline fundraising at an early stage, saving investors and startups time and money they would otherwise spend drafting one-time legal agreements. This is a short five-page document that describes all the details. Valuation caps are the only negotiable detail in a safe. Y Combinator introduced the Safe (simple deal for future actions) at the end of 2013 and has since been used by almost all YC startups and countless non-YC startups as the primary fundraising tool at an early stage. With that in mind, let`s talk about the different types of SAFE notes. From the above explanation, you now know that there are two variants included in safe ratings, including the rating cap and discount. However, these two variants are not mandatory for SAFE notices. This gives us four versions of the new Post-Money-SAFE as well as the optional pro-rated cover letter. And remember, these are not the safe model before money, but the SAFE models for time after money.
Even if the safe is not suitable for all financing situations, the conditions must be balanced, taking into account the interests of the startup and investors. As with the original safe, there are still trade-offs between simplicity and completeness, so while not all on-board cases are covered, we believe the vault covers the most relevant and common issues. Both parties are encouraged to ask their lawyers to check the vault if they wish, but we believe it provides a starting point that can be used in most situations without changes. We hold on to this belief because we`ve seen hundreds of companies first-hand each year and helped them raise funds, as well as the thoughtful feedback we`ve received from founders, investors, lawyers, and accountants with whom we`ve shared the first drafts of the post-money vault. Read on to learn everything you need to know about SAFE tickets and the pre-silver safe model. As a flexible, single-document security with no many conditions to trade, Safes allows startups and investors to save money on legal fees and reduce the time it takes to negotiate investment terms. Startups and investors usually only need to negotiate one point: the valuation cap. Since a vault has no expiration or maturity date, no time or money should be spent to extend terms, revise interest rates, etc.
In 2013, startup accelerator Y Combinator (a Silicon Valley accelerator) introduced a tool known as a simple agreement for future actions (SAFE). It was created as a simpler alternative to traditional convertible bonds. It allows startups to easily structure their seed investments without maturity dates or interest rates. Of course, YC assumes no responsibility for the consequences of using any version of the safe or any other document on our website. Our updated safes are therefore “post-money” safes. By “post-money” we mean that the possession of the safe holder is measured after (post) all the safe money has been settled – which is now a separate round – but always before (before) the new money in the price round that converts and dilutes the safes (usually the A series, but sometimes the seeds in series). In our opinion, the post-money safe has a great advantage for founders and investors – the ability to immediately and accurately calculate the amount of ownership of the company that has been sold. It`s crucial for founders to understand how much dilution is caused by each vault they sell, just as it`s fair for investors to know how much of the company`s property they bought. All the details have been added as seen in the image. Some fields are not visible at the beginning. However, if you add the details according to the agreement, the fields will be displayed.
Once you have filled in all the details, click on “Send”. Our first vault was a “pre-money” vault, as startups raised smaller amounts of money at the time of its launch before raising a low-cost financing round (usually a Round of Series A Preferred Shares). The safe was an easy and quick way to get the first money in the company, and the concept was that the owners of safes were only the first investors in this future price round. But early-stage fundraising evolved in the years following the introduction of the original vault, and now startups are raising much larger sums of money than the first round of “seed” funding. While safes are used for these start-up rounds, these rounds are really best seen as completely separate financing, rather than “bridges” to subsequent price rounds. The new vault doesn`t change two basic features that we believe remain important for startups: While this concept is consistent with the original concept of security notes, it made less sense in the world where SAFES have become independent funding rounds. The old proportional duty has therefore been removed from the new SAFE notes. But there is a new cover letter template that offers investors pro-rated financing in Series A preferred share financing based on the investor`s converted secured ownership, which is now much more transparent. Another innovation of the safe concerns a “proportionate” right. The original vault required the Company to allow vault holders to participate in the funding round after the funding round in which the vault was converted (for example, if the vault were converted to Series A preferred share financing, a safe holder – now holding a sub-series of Series A preferred shares – would be likely to purchase a proportionate portion of the Series B preferred shares). However, while this concept was consistent with the original vault concept, it made less sense in a world where vaults were becoming independent funding cycles.
Thus, the “old” pro-rata right will be removed from the new vault, but we have a new model cover letter (optional) that offers the investor a pro-rated right in Series A preferred share financing based on the investor`s converted safe ownership, which is now much more transparent. Whether or not a startup and an investor enter the cover letter with a safe will now be a decision for the parties to make, and it can depend on a variety of factors. Factors to consider may include (among others) the purchase amount of the vault and the amount of future dilution that the pro-rata right will entail for the founders – an amount that can now be predicted with much more accuracy when using post-money safes. Whether you are using the vault for the first time or are already familiar with vaults, we recommend that you read our Secure User`s Guide (which replaces the original vault primer). The Safe User`s Guide explains how the vault converts, with sample calculations as well as additional details about the proportional secondary letter, explanations of other technical changes we have made to the new vault (e.B. Tax Treatment Language) and suggestions for optimal use. This instrument expires and terminates (without exempting the Company from obligations arising from a prior breach or non-compliance with this instrument), i.e. (i) the issuance of shares to the investor; or (ii) payment or provision for payment of amounts due to the investor. Note: In this example, we used the SAFE: Valuation Cap, No Discount.
It always allows for high-resolution fundraising. Startups can close with an investor once both parties are ready to sign and the investor is willing to transfer money instead of trying to coordinate a single deal with all investors at once. In fact, high-resolution fundraising can now be much easier as founders and investors have more certainty and transparency about what each site gives and gets. If there is a resolution event before the expiration or termination of this instrument, the Company will pay an amount equal to the purchase amount due and payable to the investor immediately before or at the same time as the closing of the dissolution event. The amount of the purchase will be paid before and before any distribution of the Company`s assets to holders of common shares outstanding by reason of their ownership of them. .