Y Combinator Agreements

SAFE is synonymous with Simple Agreement for Future Equity. It`s a smart way for startups to raise debt-free seed funds. Startups are now entering into agreements with investors to obtain a certain amount of money in exchange for shares that the investor will receive at a later date. The next date in post-money-SAFEs is usually the date on which the start-up cancels a price-action cycle, usually their A-series. Safe standard agreements also provide for other major events, such as the founders who sell the business or close the store. Investors and founders negotiate an valuation ceiling that converts SAFE. If the price range (or any other triggering event) occurs and the startup`s valuation exceeds the valuation ceiling, SAFE converts to agreed capped value. The thing about a safe is that it water down the ownership of the start-up – but not today. For example, when founders contract multiple SAFs or issue shares, the increasing dilution of ownership tends to be out of their control. Kirsty Nathoo, partner of Y Combinator, gave a common example: by paying shares through an employee action plan (ESOP), as many startups do, the founders dilute their ownership by a certain percentage.

Another new function of the safe concerns a “prorgula” right. The original safe required the company to allow holders of safes to participate in the financing round after the financing round in which the safe was converted (for example. B if the safe is converted into series group preferred actuators, a secure holder – now holder of a Series A preferred share subseries – is allowed to acquire a proportionate portion of the Series B preferred share). While this concept is consistent with the original concept of safe, it made no sense in a world where safes were becoming independent funding cycles. Thus, the “old” pro-rata right is removed from the new safe, but we have a new model letter (optional) that offers the investor a proportional right in the preferential financing of Series A on the basis of the converted safe property of the investor, which is now much more transparent. Whether a start-up and an investor enter the letter with a safe will now be a choice that the parties will choose, and this may depend on a large number of factors.