The use of “SAFE” securities (Simple Agreement for Future Equity) continues to grow. Their appeal to entrepreneurs is their apparent simplicity and low cost – – SAFEs avoid the burden of pricing in an equity round and indirectly reflected in a convertible note financing. To move things along and to save time and money, many companies and their funding sources use the “genuine” or “original” SAFE forms promulgated by Y Combinator; see https://www.ycombinator.com/documents,. Those forms do provide some consistency (but still contain the disadvantages of SAFEs, which we have discussed elsewhere). However, early stage companies should beware when documents look less and less like the original SAFEs and more like a fuzzy approximation of one (which we can call “SAFE-ish” documents). Depending on how they handle discounts, valuation caps, conversion, “Company Capitalization” and any additional terms or covenants, SAFE-ish financing documents may present the company with a different deal that the one it expects. Some SAFE-ish documents may cause unexpedited delays, legal fees and difficulties in the next round of financing. So the lesson is, as it always is, “clients must still read transaction documents carefully, whatever those papers call themselves.“
SAFE’s – – Less Predictable Variations on a Theme?
