For those who do not know, a safe is an agreement by which an investor provides an investment in a company that is converted into a preferential share guarantee if AND if a preferential capital is issued by an eligible capital increase. It is not like repayable debt, it does not support interest like debt, and risks and rewards are more oriented towards an equity investor. It is possible that the company will never go through a privileged round table because they are very successful and therefore it is never necessary to convert FAS and investors will never be reimbursed, unless there is a change of control. This is really a risky bet from an investor, especially a retail investor. To be eligible for the capital classification, « there is no need to obtain guarantees. There is no obligation in the contract to file guarantees at any time or for any reason. Many companies in the development phase need bridge financing. They are increasingly attracted to standardized instruments, such as Simple Agreements for the Future (SAFE) and Keep It Simple Securities (KISS). However, the accounting, legal and operational details of these agreements are not always simple, despite the Img. folding their names. The instruments may be referred to as « equity » or allow the investor to benefit from a return similar to that of the shares, but they do not result in the classification and valuation of the shares for accounting purposes. As with any share transaction, it is important that you consult with your legal and accounting representative when considering a simple agreement on future capital. If you have questions about how a SAFE can work for your business, or if you are interested in a more traditional transaction, contact us for a free 30-minute consultation. To qualify for the classification of shares, « no consideration right may be greater than the rights of shareholders.
There are no provisions in the contract that indicate that the consideration has greater rights than a shareholder in the action underlying the contract. In the following situations, a classification of liability is required and, as a general rule, mark-to-market Accounting: Of course, not everyone is satisfied. In particular, FAS has increased the downside risk for seed investors. In addition to the obvious and known risk of a business failure, SAFE investors now face the unexpected risk that successful start-ups will source their own supplies and never make a cheap financing cycle (because they don`t need it) and are therefore never forced to convert SAFE funds into equity or repay the money paid out. This is a potential negative result that doesn`t happen most of the time, but occurs often enough to have become an injured spot with some seed internship investors. The factors currently unknown in the calculations above are, of course, the share price of future preferred shares and the number of shares outstanding fully diluted at the time of the conversion of FAS. From a technical point of view, start-ups do not have sufficient authorized shares before the conversion of FASS after the conversion of SAFEs. For start-ups, however, it is very easy to increase the number of actions allowed as they see fit. The ability to increase the number of authorized shares of startups is entirely under the control of co-founders, who typically hold 100% or almost the outstanding shares of companies. As a general rule, there are no other board members than co-founders for start-ups in the start-up phase with FAS. There are no other voting parties. There are no external lenders that enter into restrictive alliances.
There are no barriers for start-ups that increase the number of authorized shares by enough to issue the required number of shares after converting SAFEs. Due to the total control of the co-founders, startups have the ability to approve and issue a sufficient number of shares to turn FASCs into shares successfully.