Publication number: ELQ-79092-1
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Safe (Simple Agreement for Future Equity) Financing Documents
Documents for Simple Agreement for Future Equity Financing for replacement of Convertible Notes.
These are intended to be more simple and clear than convertible notes, but just as flexible. Fair to both founders and investors. Before publication, the documents were complimented by some of the startup world's top investors. Intended to be the next step up from a convertible note, in the hope that startups and investors find it a simpler way to achieve the same objectives.
A safe does not act as a debt instrument, unlike a convertible note. Debt instruments can sometimes have unintentional adverse ramifications for startups i.e. they're usually subject to certain rules, they have maturity dates, it's possible that they'll contain security interests and at times subordination agreements, and they can create an insolvency threat.
The money invested in a startup via a safe won't accrue interest because it is not a loan. This is advantageous for startups and better demonstrates investors' intentions who never actually intended to provide a loan.
A safe is intended to save money and time for investors and startups in legal fees as it is a one-document, flexible security that doesn't have a huge amount of terms of investment to negotiate. It is usually only the valuation cap that needs to be negotiated. Due to the fact that a safe doesn't have an expiration date nor a maturity date, no money or time should be spent on revising interest rates, extending maturity dates etc.
A safe facilitates high-resolution fundraising. When both parties feel ready, the startup can close with the investor. This would be in place of coordinating a single close simultaneously with all investors.
A safe might not be the best option for all kinds of situation, but the terms should be generally quite neutral. It is advised that a lawyer takes a look at the safe of both parties, but not a lot of modifications should be necessary. This said, YC is not liable for any consequences as a result of this safe.
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