SAFE is a kind of warrant that gives investors the right to obtain shares of the company, usually preferred shares if and when there is a future valuation event (i.e. when the company collects “cheap” equity next year, is acquired or it files an IPO). Apart from Y Combinator, SAFE is tested and used by startups in the crowdfunding markets. In 2020, the number of non-convertible notes (for example. B SAFE and kiss notes) used by pre-financing companies is just as widespread (58%) The number of convertible bonds issued. If companies become more well known to SAFE from the beginning, this rather young security may have found its ideal niche in the offers of Title III, also known as crowdinvesting for all investors. To understand what a SAFE is, it is also important to know what it is not. It is not a debt instrument. Nor are they common shares or convertible bonds.
However, SAFe`s convertible bonds are similar in that they can provide equity to the investor in a future preferred share cycle and include valuation caps or discounts. However, unlike convertible bonds, FAS has no interest and no specific maturity date and, in fact, can never be triggered to convert SAFE into equity. Some issuers offer a new type of security as part of some crowdfunding offers they have called safe. The acronym means Simple Agreement for Future Equity. These securities are risky and very different from traditional common shares. As the Securities and Exchange Commission (SEC) states in a new investor newsletter, despite its name, a SAFE offer cannot be “simple” or “safe.” A “SAFE” is an agreement between an investor and an entity that grants the investor rights to the company`s future equity, which are similar to a share warrant, unless a certain price per share is set at the time of the initial investment. The SAFE investor receives future shares in the event of an investment price cycle or liquidity event. SAFEs are supposed to offer start-ups a simpler mechanism to apply for upfront financing than convertible bonds.