Using a SAFE contract can be a great way to fund a startup, but it may not be the right option for any business. Startup creators should consider all their options and consider consulting an expert before entering into a funding agreement. Y Combinator, a well-known technology accelerator, created the SAFE rating (simple agreement for future equity) in 2013 and uses it to fund most of the Seed phase startups participating in its three-month development meetings. Since 2005, Y Combinator has funded more than 1,000 startups, including Dropbox, Reddit, WePay, Airbnb, and Instacart. A SAFE (Simple Future Equity Agreement) is an agreement between an investor and an entity that grants the investor rights for future capital to the company similar to a warrant, unless, without determining a specific price per share at the time of the initial investment. The SAFE investor receives the futures shares in the event of an evaluated investment cycle or liquidity event. SafThe aim is to offer start-ups a simpler mechanism to seek start-up financing as convertible bonds. If you work in the start-up industry, you`ve probably heard the term “safe.” A simple agreement for future equity, better known as SAFE, was introduced in 20131 by Y Combinator as an inexpensive, simple and fast method for start-ups to raise capital. While SAFEs are not yet as popular in Canada as they are south of the border, they are developing as an alternative to more traditional forms of early-stage financing, such as convertible bonds or preferred shares. To tackle these problems, Y Combinator introduced the idea of SAFE (Simple Agreement for Future Equity). A SAFE is an investment agreement that not only simplifies the conditions for new startups, but also helps them to obtain slightly better conditions than for traditional financing opportunities.

A SAFE is a simple agreement with a document that helps startups avoid many of these problems. Unlike a debt note, it is not debt and does not come with interest or a maturity date. In addition, the valuation of the company is postponed to a later date, so that the founders are not required to accept the lower valuation, which is accompanied by an early-stage equity funding cycle. SAFE ratings (or simple agreement for future equity) are documents that startups often use to raise seed capital. In essence, a SAFE rating is a legally binding promise that allows an investor to acquire a certain number of shares at an agreed price at a given time in the future. SAFEs protect both startups and investors by including important agreements for potential future events, such as: one of the main attractions for SAFEs for founders is the possibility of concluding the financing with an investor on an individual basis, rather than coordinating a single conclusion with several investors – often a stressful and expensive process. This feature creates a staggered equity raising process that allows founders to better manage the amount of equity to be offered (so that it is not diluted more than necessary) and to ensure that the company is not overcapitalized. . . .