What’s a SAFE, you ask?
A SAFE, also known as Simple Agreement for Future Equity, is a legal contract that companies use to raise capital. Similar to warrants, SAFEs delay the company’s valuation until a future date while providing the investor with the opportunity to invest or the company to raise capital.
Using a SAFE, the investor invests money in the company and, in exchange for the money, the investor receives the right to purchase stock in a future equity round subject to certain parameters set out in the SAFE.
SAFEs commonly have the following features:
- SAFEs allow for more rapid fundraising; deals can close as soon as both parties are ready to sign and the investor is ready to invest money;
- SAFEs save companies and investors money in legal fees and reduced time in negotiating the terms of the deal;
- SAFEs have no expiration or maturity date until a conversion event occurs;
- SAFEs have no interest rate, no accrued interest;
- SAFEs automatically convert on any priced shares issue; and,
- Companies and investors will usually have to negotiate only the valuation cap.