For example, if a later investor receives a lower valuation cap or a higher discount, the MFN clause ensures earlier investors benefit from the same terms. This type of SAFE note is well-suited for early-stage startups anticipating multiple funding rounds. It reassures initial investors while ...
Valuation caps:SAFEs often include a valuation cap to protect founders if they grow faster than expected, setting a maximum company valuation at which the investment will convert into equity. Discount rates:Investors may also be granted a discount rate, allowing them to convert their investment int...
SAFE Note Calculation Example Suppose an early-stage AI startup is raising a $1 million seed round from venture investors using SAFE notes with a $10 million valuation cap and 20% discount rate. One of the investors, an angel investor, contributes $500k via a SAFE note — for which, the...
There are four main types of SAFE: (1) valuation cap, (2) discount, (3) valuation cap + discount, and (4) most favored nation (MFN). They are defined by how you calculate the amount of equity received by the SAFE holder(s) upon conversion. The SAFE holders’ investment amount is d...
Potential equity at favorable terms.Upon the company being assigned a valuation in a priced equity round, SAFE holders convert their investment into equity, usually in the form of preferred stock. Depending on the valuation cap and discount rate, the conversion terms may be significantly better tha...
Safe: Valuation Cap, No Discount (Singapore) Pro Rata Side Letter (Singapore) About the Safe Y Combinator introduced the safe (simple agreement for future equity) in late 2013, and since then, it has been used by almost all YC startups and countless non-YC startups as the main instrumen...
There are terms associated with these SAFE Notes – namely thevaluation capandconversion discount– but these only take effect in the nextpriced round, when the startup raises capital at a specific valuation. Also, unlike withventure debt, no warrants are initially issued to the SAFE investors,...
This article considers the tax treatment of the Y Combinator’s current post-money SAFE (Discount; no Valuation Cap).[15]Note that the Y Combinator SAFE template is often customized by the issuer or as a result of negotiations among the parties, and those changes could affect the instrument’...
1. Cap and Discount ï This is a safe with a negotiated Valuation Cap and Discount Rate. Either the Valuation Cap or the Discount Rate applies when converting this safe into shares of Safe Preferred Stock. ï The Discount Rate applies to the price per share of the Standard Preferred Stoc...
Now, the two most important things about safe notes when it comes to the structure and the terms are either there is a cap, meaning you’re already establishing a valuation where they’re not going to go over when that conversion happens. Or, perhaps, the discount that you’re providing ...