Do angel investors use SAFEs?

SAFEs are a form of financing that allow investors to convert their investment into equity at a future priced funding round or liquidation event. Many early-stage deals utilize SAFEs to simplify and streamline the financing process. SAFEs are the most popular investment instrument on AngelList.

What is SAFE no cap?

Simple Agreement for Future Equity (SAFE): Discount, no Cap This tool provides a template for a Simple Agreement for Future Equity (SAFE) with a discount rate and no valuation cap and can be adapted to suit your organization’s needs. A safe is a Simple Agreement for Future Equity.

Are SAFEs good for investors?

The best thing that can be said about using a SAFE is that it may simplify the process of raising early stage capital. In ideal circumstances, these early SAFE investors will gain the benefit of a fully negotiated venture level investment once the startup has grown to a stage where a proper valuation can bear fruit.

Are angel investors debt?

In an equity financing, often called a “priced round,” angel investors directly purchase capital stock from the company. A company might prefer an equity investment because the investment is not considered debt; therefore, the angel investors may not “call” the debt at an inconvenient time years later.

What is a discount in a SAFE?

The discount gives them the right to convert their investment at a reduced price to what’s paid by the next round’s equity investors. For example, if the price per share of your next round comes in at $1, with a 20\% discount, early investors will buy their shares for 80 cents.

What is a SAFE discount rate?

The Discount Rate is defined at the top of the SAFE, and usually something like 80\%. If the startup’s valuation at the Series A is lower than the Valuation Cap, the Safe Investors will be paying for their Series A shares at the Discount Price (the Series A price multiples by Discount Rate).

Are SAFE caps pre or post money?

The valuation cap in the new SAFE is post-money (as opposed to pre-money). For a company raising just one SAFE round, there’s effectively no repercussions: an investor willing to invest $2M on $8M pre-money is presumably willing to invest $2M on $10M post-money, with the same resulting ownership of 20\%.

What is SAFE discount rate?

The discount rate is a term in a Convertible Note or SAFE that gives investors a reduced price to that paid by the Series A investors. Typical discounts range from 0\% to 20\%.

What is a cap discount?

The cap means the company knows the highest value of conversion. The discount means the investor knows there will be at least some recognition of the risk of coming in early, if everything doesn’t go as planned, and we all know they often times don’t. The discount only applies when the cap value isn’t reached.

What is the discount for safe cap and discount investors?

The discount is a discount for the SAFE Cap and Discount investor on the price that a series-a investor pays. If the series-a investors pay $1.00 per share and there is a 20\% discount, then the SAFE investors convert at $0.80 a share.

What are the “drag along provisions” for sasafe cap and discount investors?

SAFE Cap and Discount investors will get and sign the same docs as series-a investors. The next part says the docs will have “customary exceptions” to the “drag along” provisions. Customary exceptions relate to bankruptcy, insolvency, reorganization or other similar provisions affecting creditors’ rights generally.

Can I change the post-money safe cap and discount?

This Safe is one of the forms available at https://ycombinator.com/documents and the Company and the Investor agree that neither one has modified the form, except to fill in blanks and bracketed terms. The new post-money SAFE Cap and Discount makes an effort to say that no one can change the document other than in the brackets.

Do people actually raise money with uncapped safes on SeedInvest?

It is debatable whether anyone actually raises money with uncapped safes. Founders tend to use SAFE notes with caps. Note that five hundred startups have applied to raise funds on SeedInvest but have had to turn down deals with uncapped SAFE notes.