5. Most Favored Nations (MFN) Provision

Finally, it is possible to issue a SAFE with no Valuation Cap and no Discount Rate, but with a so-called Most Favored Nations (MFN) Provision. The characteristics of this verion of the SAFE are nicely described in the SAFE-Primer by Y Combinator:

"If the company subsequently issues SAFEs with provisions that are advantageous to the investors holding this SAFE (such as a valuation cap and/or a discount), this SAFE can be amended to reflect the terms of the later-issued SAFEs. The amendment term is the so-called “MFN Provision.”  Note that, unless the later SAFEs include an MFN, the MFN of the original SAFE is amended away once the SAFE holder decides the MFN is triggered.  In other words, the MFN provision typically provides only one opportunity to amend the original SAFE, not multiple opportunities as the company continues to issue additional SAFEs.

  • If there is an Equity Financing before this SAFE is amended pursuant to the MFN Provision, the investor would receive the same shares of preferred stock as the investors of new money in the Equity Financing, at the same price.  However, this SAFE does not automatically convert into shares of preferred stock unless the amount of new money raised in the Equity Financing is at least $250,000 .  This threshold amount provides the investor with some protection against an insignificant equity round raised at an artificially high valuation.

  • If there is a Liquidity Event before this SAFE is amended by the MFN Provision, the investor could elect to have the Purchase Amount repaid, or to convert the SAFE into shares of common stock, based on the fair market value of the common stock at the time of the Liquidity Event."