Section outline

  • This section looks at a financing instrument that has become increasingly popular for seed financing: The Simple Agreement for Equity, or SAFE. The logic of a SAFE is indeed very simple: Instead of negotiating all the deal terms today, the company and the investor agree that the investor will receive company stock at a later date, in connection with a priced liquidity event such as the issuance of Preferred Stock or the liquidation of the company. 

    In this section we discuss the key terms of a SAFE, namely the Valuation Cap and the Discount Rate and we provide various examples for how a SAFE works in different scenarios. We conclude with a discussion of the advantages and the disadvantages of this innovative security.

     

    • This section's reading assignment and review questions are listed below:

    • Reading: Simple Agreement For Equity (SAFE) Book
      Students must
      View
    • Quiz: SAFE
      Students must
      View
      Receive a grade

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      The following online tool allows you see how specific SAFE mechanisms affect the ownership structures in future financing rounds:

    • Tool: Simple Agreement for Equity (SAFE) URL