Accordingly, the pre-agreed event triggering the conversion of SAFE to a share in the invested start-up is known as the “trigger/ing event”. Once a SAFE has been concluded between the investor and the start-up, the investor gets a financial stake in the start-up which actually is a contractual right to be converted into shares once the pre-agreed event in SAFE triggers the conversion. This way the founders have the awareness on how much portion of their ownership is relinquished and how much dilution is caused by such sale, while the investor knows from the beginning how much ownership of the start-up he gets for his investment.Īs mentioned above, SAFEs are still evolving since the day they have been created to provide faster, simpler and more efficient ways to gather the investors and start-ups by especially avoiding red tapes. Following the evolution of early-stage fundraising and increase of the popularization of SAFE in the start-up ecosystem, in 2018, Y Combinator have structured SAFE again to make calculations on “post-money” for clearance to both founders and investors to immediately see the full picture by giving them the ability to calculate precisely how much ownership of the company has been sold. SAFEs have been primarily structured to make calculations on “pre-money” as the investments made with a SAFE were not substantial at the time of its introduction and holders of SAFEs were merely early investors in such startup’s future priced round. It basically covers sections of definitions, triggering events, representations of the company and investor, and miscellaneous legal provisions. SAFE is mostly a simple standardized agreement 1 and has been initially drafted by Y Combinator to replace convertible notes. SAFE has been introduced to start-up ecosystem as a funding vehicle in 2013 by Y Combinator, an American technology startup accelerator which successfully incubated more than 3000 start-ups including AirBnB, DoorDash, Dropbox, Twitch and Reddit. It is possible for the start-ups to sign SAFEs with numerous investors at the same time or at different points with different valuation caps, as by nature, SAFEs let start-ups to reward investors who are willing to move first by taking more risk, with lower valuations. SAFE is an acronym for “Simple Agreement for Future Equity” that is concluded between the investors and the target companies/start-ups where the investors give the funds to start-ups in advance, in exchange for a promise from the company to give shares to the investor at a future date when start-up raises money on a priced round (equity investment).
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