Simple Agreement for Future Equity (SAFE)
SAFE (simple agreement for future equity) has been used by countless startups as a primary tool for early-stage fundraising.
The safe has two basic features that are essential for startups:
- It allows high resolution fundraising. When both parties are ready to sign and the investor is ready to wire transfer, the startup can close with the investor instead of trying to coordinate a closure with all investors at the same time. In fact, since both the founders and investors have more certainty and transparency about what both parties give and receive, high resolution fundraising may be much easier.
- As a flexible single-document security, there is no need to negotiate a large number of terms. The safe can save start-ups and investors legal costs and reduce the time spent negotiating investment terms. Start-ups and investors usually only need to negotiate one item: a valuation cap. Because the safe has no expiration or maturity date, there should be no time or money to spend on extending the maturity date, revising the interest rate, etc.
Although safes may not be suitable for all financing situations, these terms are designed to maintain a balance in consideration of the interests of start-ups and investors. There is a trade-off between simplicity and comprehensiveness, so although not every edge case is addressed, the safe covers the most relevant and common issue.
If you have any clarifications, you may contact Bestar.