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.” The new safe does not change two fundamental characteristics that we believe are important for startups: 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 the three-month development sessions. Since 2005, Y Combinator has funded more than 1,000 startups, including Dropbox, Reddit, WePay, Airbnb and Instacart. 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. Similarly, convertible notes are usually triggered only when there is a “qualifying transaction” (more than a minimum amount required for the agreement) or when both parties agree to convert it. Safe can be converted if you get any equity investment amount. It`s nice for simplicity, but there`s no control to the contractor, which is why the change rating seems to be the best choice for seed investment in this category.