To address these issues, Y Combinator introduced the idea of safe (Simple Agreement for Future Equity). A safe is an investment contract that not only simplifies the conditions for new startups, but also helps them achieve slightly better terms than with traditional financing opportunities. SAFEs protect both start-ups and investors by including important agreements for potential future events such as.B.: Using a SAFE contract may be an advantageous way to finance a start-up, but it may not be the right option for each company. Startup creators should explore all their options and consider consulting an expert before entering into a financing agreement. If you`re involved in start-ups, you`ve probably heard the term “safe.” Y Combinator launched a simple agreement for future equity, better known as SAFE, in 2013 as an inexpensive, simple and fast way for start-ups to raise capital. While FASAs have not become as popular in Canada as they are south of the border, they are developing as an alternative to more traditional forms of early financing, such as convertible bonds or preferred shares. A SAFE is a simple agreement with a document that helps startups avoid many of these problems. Unlike a change in sola, it is not debt and it does not come with interest or a due date. The valuation of the company is thus postponed to a later date, so that the founders are not required to accept the lower rating that is accompanied by a start-up capital financing cycle. 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. One of the biggest attractions for the founders for SAFS is the ability to close financing with an investor on an individual basis, instead of coordinating a single deal with several investors – often a stressful and costly process.
This function creates a staggered revaluation process that allows the founders to better manage the amount of equity to be offered (so that they are not diluted more than necessary) and to ensure that the company is not over-hospitalized. Another advantage is that issuers spend less on lawyers and save time to negotiate, since the agreement does not have complex terms compared to traditional funding methods. Since there are no maturities or deadlines for financing equity, founders can focus on growing their businesses without the overstlying stress of debt or financing delays. SAFE (or simple agreement for future equity) Notes are documents that startups often use to raise seed capital. Essentially, a SAFE note serves as a legally binding promise to allow an investor to buy a certain number of shares at an agreed price at a given time in the future. 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.