SAFE Documents 

SAFE Y Combinator Docs are used by startups to raise capital during their seed financing. Speak with a LawTrades to get it customized or reviewed before signing.

Overview

A SAFE (Simple Agreement for Future Equity) is a financing contract used by companies to raise capital in their seed financing rounds. A SAFE aims for long term stabilization by eliminating those features that make convertible debt risky. Unlike convertible notes, SAFEs are not a debt instrument and lack both a maturity date and an interest rate. SAFE agreements were created by Y Combinator and are intended to be simple and fair to both investors and founders, while preserving the flexibility of convertible notes. There are four versions of a SAFE and each are meant to be short and usually around five pages in length. This saves startups and investors a ton of time and legal fees on hammering out the details of a SAFE, but it’s always smart to have an attorney take a look before you sign.

Benefits of legal advice

Confirm best form of funding 

There are other attractive options for companies - like KISS documents and convertible notes - and a lawyer can assess if those sources suit your business better or using SAFE Y Combinator docs.

Assurance you’re doing it right 

Although a SAFE is meant to be simplistic, there are still mistakes to make. Also, it’s nice hearing from an attorney that the proposed terms of the agreement are fair and enforceable.

You have an attorney to turn to 

There’s a good chance you’re going to like your attorney from LawTrades and want to keep using him / her. By setting up that relationship for SAFE Y Combinator Docs, you have a legal expert to turn to when in need.

FAQ

What’s the difference between convertible notes and SAFEs?

SAFE Y Combinator Startup Documents is like a convertible note in that the investor buys not stock itself, but the right to buy stock in an equity round when it occurs. A SAFE can have a valuation cap, or be uncapped, just like a note. However, unlike debt, a SAFE requires no fixed term or an interest rate. The overall setup of a SAFE requires less paperwork and formalities as well.

Can all types of businesses utilize SAFE documents?

No. One drawback of a SAFE agreement is that it requires a company to be incorporated, thereby restricting early stage LLCs from taking advantage of this agreement.

What are the different types of SAFEs?

There are four different versions of SAFEs: 1) Cap, no Discount; 2) Discount, no Cap; 3) Cap and discount; and 4) “Most Favored Nation” with no cap or discount.

What is a valuation cap? What is a discount?

A valuation cap (“cap”) entitles SAFE holders to convert into equity at the lower of the valuation cap or the price in the subsequent financing. A discount allows early investors the opportunity to purchase preferred stock at a cheaper rate at a future financing round.

What does a “Most Favored Nation” mean?

A most favored nation clause (also referred to as a “MFN clause”) allows a SAFE investor to elect more favorable terms that are offered to any subsequent investors following the original investor’s investment and prior to a next equity round.
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