SAFEs sometimes apply discounts, usually between 10% and 30%, on future converted equity. SAFE notes contain a few primary terms that alter how they eventually convert to company shares, and they are: You can then calculate the company's new price per share with this information.Īfter you know the price per share, you can convert the SAFE note into the applicable number of shares in the company and distribute them to the SAFE investor. Once progress has been made, you find another investor, giving your company what is known as post-money valuation. The company uses the original investment to build the business. Here's a look at the basic steps that take place when utilizing a SAFE note for your startup:Īn investor provides seed money in exchange for promised future equity. SAFE notes work by allowing you to postpone your company's valuation until a later date. When a company is first starting out, there is typically very little data, making it difficult to assign the company any value. Helpful tools for startups trying to grow or scale their business. Though convertible notes are a bit more complex, both SAFE and convertible notes are: Because of this, convertible notes usually have a maturity rate and an interest rate. 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. Essentially, a SAFE note acts as a legally binding promise to allow an investor to purchase a specified number of shares for an agreed-upon price at some point in the future. SAFE (or simple agreement for future equity) notes are documents that startups often use to help raise seed capital.
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