Historically, most start-ups have been financed either by equity or by loans in the form of convertible debt securities. However, a number of hybrid instruments have recently been created to finance start-ups. Especially, and very popular these days, is the use of an instrument called SAFE. "SAFE" is an acronym for "simple agreement for future capital." A SAFE is a contract to obtain an amount of equity that will be fixed in a future price cycle for which the investor pays the purchase price in advance. Developed and published by Y Combinator at the end of 2013, SAFE aims to provide a more efficient, clearer and simpler alternative to convertible bonds and, in particular, certain aspects of convertible bonds (including a defined term, interest rate and maturity date). Despite their name, FAS is not always as "simple" as expected, and it is not necessarily "for future capital" if the conversion never takes place. The pros and cons of SAFes for businesses and investors are discussed below. head. The CAFE offer is of course undiluted, CAFE holders are more likely to capture their fair upside trends than when they hold other equity instruments. In addition to the negative reasons why a SAFE investor should never receive equity in the company (such as the company that goes bankrupt before obtaining qualified financing), if the company is doing extremely well and never has to make financing that meets the conversion threshold, a SAFE investor can never obtain equity in the best performing start-ups. , able to self-finance. Digital. CAFE makes the equity of companies programmable.
CAFE enables founders to develop automated and scalable incentive plans for stakeholders so that their key stakeholders can win CAFE according to the rules they have set. Software is finally eating up capital. The start-up (or another company) and the investor enter into an agreement. They negotiate things like: SAFE investors take the most important risk, if not all, because there is no guarantee of equity in the company. An investor exchanges money for the hope that a transformational event will occur. Unlike the converted debt, there is no debt with a SAFE. There is also no maturity date, which means that investors have to wait indefinitely before they can get their hands on the equity they have purchased, if they do. As soon as the terms are agreed and the SAFE is signed by both parties, the investor sends the agreed funds to the company.