Are SAFEs pre or post money?
Are SAFEs pre or post money?

How do you convert pre-money SAFEs?

The conversion price for the investor's pre-money SAFE shares is calculated by dividing the pre-money valuation cap by the company capitalization (excluding SAFEs and convertible notes).

What is post-money valuation SAFE?

A SAFE (Simple Agreement for Future Equity) is an agreement in which an investor gives you money for your company now, with the expectation that you'll convert that amount of money into shares (an ownership stake) later on. Founders and investors use SAFEs to simplify early-stage startup fundraising.

How are SAFEs valued?

Valuation Cap. The number of shares of preferred stock a safe will convert into is determined by dividing the amount of the safe investment by a price (per share) for the preferred stock. The lower this price is, the more shares a safe will convert into.

How does a SAFE work?

A SAFE is an investment contract between investors and companies looking to raise capital. Individuals make investments in exchange for the chance to earn a return—in the form of equity in the company—if the company experiences another round of financing, conducts a token-generation event*, is acquired or has an IPO.

Is a SAFE a priced round?

SAFEs convert into stock in a future priced round. They're considered a type of warrant—not a debt—meaning they give investors certain equity rights.

How do you account for SAFE investments?

1:553:33Accounting for a SAFE note investment – YouTubeYouTube

How are SAFEs taxed?

Depending on the terms of the SAFE and the facts and circumstances relevant to its issuance, a SAFE should be treated as either equity or a variable prepaid forward contract from a U.S. federal income tax perspective.

Are valuation caps pre or post?

A valuation cap is pre-money: the 'cap' or limit is placed on the starting valuation of the company before the financing round. This process protects investors against dilution should the starting valuation of the company increase significantly between funding.

Are SAFEs included in pre money valuation?

Pre-Money vs. The difference between the Pre-Money and Post-Money SAFE is that with a Pre-Money SAFE, the conversion into equity does not include the conversion of the SAFEs in its calculation. Consequently, a Post-Money SAFE does include the conversion of the SAFEs in the equity calculation.

Are SAFEs equity or debt?

SAFE notes are not debt; they're convertible equity. There's no loan or maturity date involved.

Is a SAFE a loan?

Unlike a convertible note, a SAFE is not a loan; it is more like a warrant. In particular, there is no interest paid and no maturity date, and therefore SAFEs are not subject to the regulations that debt may be in many jurisdictions. This simplicity is the primary motivation of a SAFE.

What is a typical SAFE discount rate?

SAFEs often include a discount rate (often between 10-25%) by which the price per share that the SAFE converts into is discounted compared to the price the priced round investors are paying.

Do SAFEs have interest rates?

SAFEs are not a debt instrument. Instead, they are defined as a warrant. That means they do not carry an interest rate. Convertible debt, however, can carry an interest rate ranging from a 2% – 8% (most falling around 5%).

Where do SAFE notes go on balance sheet?

SAFE funds on the balance sheet Since SAFE notes don't have a maturity date, they don't have to be paid back in 12 or 24 months. They sit on the balance sheet in the equity portion until the company: Is sold. Raises a follow-on round of capital.

How do you classify a SAFE?

However, even if a SAFE is not a liability due to the criteria noted above, a SAFE can only be classified as equity if it is both: Indexed to the issuer's stock….Liability or Equity?

  1. A fixed-dollar amount.
  2. Something other than the issuer's shares.
  3. Inversely related to the fair value of the issuer's shares.

May 17, 2021

How do you account SAFE notes?

1:183:33Accounting for a SAFE note investment – YouTubeYouTube

Do SAFEs dilute each other?

Because the new Post-Money Safe includes all converting securities when calculating the Safe price, this means that the Safe and other converting securities do not dilute each other; they only convert the previous equity holders (i.e. common stockholders i.e. founders).

Do SAFEs have pro rata rights?

What is a SAFE Pro Rata Rights Agreement? A SAFE Pro Rata Rights Agreement is a letter by which a company gives pro-rata rights to a SAFE investor. By using a SAFE Pro Rata Rights Agreement, a SAFE investor has the right to purchase more shares in a company if the company raises a further round or rounds of financing.

Is a SAFE debt or equity?

SAFE notes are not debt; they're convertible equity. There's no loan or maturity date involved.

Is a SAFE a debt?

A convertible note is debt, while a SAFE is a convertible security that is not debt. As a result, a convertible note includes an interest rate and maturity rate, while a SAFE does not. A SAFE is simpler and shorter than most convertible notes.

Is a SAFE considered equity?

SAFEs are not common stock. SAFEs do not represent a current equity stake in the company in which you are investing. Instead, the terms of the SAFE have to be met for you to receive any shares in the company.

Are SAFEs debt or equity?

SAFE notes are not debt; they're convertible equity. There's no loan or maturity date involved.

How do SAFEs work investment?

A SAFE is an agreement to provide you a future equity stake based on the amount you invested if—and only if—a triggering event occurs, such as an additional round of financing or the sale of the company.

How do you record SAFE on a balance sheet?

1:183:33Accounting for a SAFE note investment – YouTubeYouTube

Are SAFE notes debt or equity?

SAFE notes are not debt; they're convertible equity. There's no loan or maturity date involved.

How does pro rata work with a SAFE?

A SAFE Pro Rata Rights Agreement is a letter by which a company gives pro-rata rights to a SAFE investor. By using a SAFE Pro Rata Rights Agreement, a SAFE investor has the right to purchase more shares in a company if the company raises a further round or rounds of financing.

Are SAFE Notes equity?

SAFE notes are a type of convertible security, while convertible notes are a form of debt that can convert into equity once certain milestones are met. Because of this, convertible notes usually have a maturity rate and an interest rate.

Is SAFE treated as debt or equity?

SAFEs are neither equity nor debt – they represent a contractual right to future equity, in exchange for which the holder of the SAFE contributes capital to the company.

Where do SAFEs go on the balance sheet?

SAFE funds on the balance sheet Since SAFE notes don't have a maturity date, they don't have to be paid back in 12 or 24 months. They sit on the balance sheet in the equity portion until the company: Is sold.

Where do SAFE notes go on the balance sheet?

1:183:33Accounting for a SAFE note investment – YouTubeYouTube

How do you record a SAFE note on a balance sheet?

1:183:33Accounting for a SAFE note investment – YouTubeYouTube

Is a SAFE note equity?

SAFE notes are a type of convertible security, while convertible notes are a form of debt that can convert into equity once certain milestones are met. Because of this, convertible notes usually have a maturity rate and an interest rate.