Our AI writing assistant, WriteUp, can assist you in easily writing any text. Click here to experience its capabilities.
Will Angel Investors Put Their Money in a SAFE?
Summary
The article discusses the SAFE agreement, which is a way for startup entrepreneurs to value their company when recruiting angel investors. The agreement gives the investor a non-quantifiable equity interest in the company that will convert into preferred stock at a defined conversion rate when the next qualified investment round occurs. The article notes that the SAFE agreement is becoming more popular on the west coast, but less so on the east coast.
Q&As
What is the SAFE agreement?
The SAFE agreement is a contract between an investor and a startup that gives the investor equity in the company in exchange for future investment.
How does the SAFE agreement function?
The SAFE agreement functions much like a convertible note, in that the investor puts money into the company and eventually converts it to equity. However, there are some key differences: the money invested in the SAFE does not accrue interest, and the SAFE has no maturity date.
What are the benefits of the SAFE agreement for startups?
The benefits of the SAFE agreement for startups include the ability to borrow money later without having a debt overhang, and the fact that the SAFE never expires.
What are the benefits of the SAFE agreement for investors?
The benefits of the SAFE agreement for investors include the option to convert into common stock immediately prior to a change-of-control transaction, and the fact that the SAFE has no maturity date.
How well accepted is the SAFE model by investors?
The SAFE model is more accepted on the west coast than the east coast, but it is not clear how well accepted it will be for crowdfunding platforms.
AI Comments
👍 The SAFE investment model is a great way for startups to get funding without accruing interest or putting up equity.
👎 The SAFE investment model may not be well accepted by all investors, and it may require extra explanation and socializing.
AI Discussion
Me: It's about the SAFE investment model for startups.
Friend: What's a SAFE investment?
Me: A SAFE investment is a way for startups to raise money from angel investors without putting a value on their company.
Friend: That's interesting. I wonder if this model will catch on.
Me: I'm not sure. I think it depends on how well accepted it is by investors.
Action items
- If you're a startup entrepreneur seeking angel investors, learn about the SAFE investment model and how it works.
- If you're an angel investor, familiarize yourself with the SAFE model and how it may be beneficial for startups.
- If you're using a crowdfunding or quasi-crowdfunding platform to seek investment, be aware that some investors may not be familiar with the SAFE model and be prepared to explain it.
Technical terms
- SAFE agreement
- a contract between an investor and a startup company that gives the investor an equity interest in the company that will convert into preferred stock at a defined conversion rate when the next qualified investment round occurs
- Y-Combinator
- a Silicon Valley incubation firm that has funded more than 800 startups since 2005
- convertible note
- a debt instrument that can be converted into equity at a later date
- change-of-control transaction
- a transaction in which a company is acquired or merged with another company