Safe Agreement Balance Sheet

This requirement is clearly met. SAFE agreements do not require companies to deposit collateral to protect the position of SAFE holders. In fact, SAFE holders have no position to be protected. They really risk losing all their investment. The position of SAFE holders is very similar to that of ordinary shareholders, but the position of SAFE holders is even more fragile than that of ordinary shareholders, because co-founders, who are also regular shareholders, exercise full control of startup companies. SAFE owners do not have a seat on the board of directors. SAFE owners have no voice. SAFE holders have no control or protection against the absolute control of the co-founders. Let`s start by explaining why this guide is so important. Reg CF is off to a start and by the end of 2017, I expect between 600 and 800 companies to have followed or are actively going through a campaign somewhere.

That`s a lot of businesses in about a year and a half. At present, general statistics indicate that SAFE agreements account for about 20-25% of reg CF`s current increases. Many companies will assume these investments on the balance sheet, many of which will have to report to their investors in the coming years. For those who don`t know, a SAFE is an agreement in which an investor makes an investment in a company that is converted into preferred shares if AND if a preferred share is issued by a qualifying capital increase. It is not repayable like debt, it does not bear interest such as debt, and the risks and opportunities are more suited to an equity investor. It is possible that the company will never undertake a preferred cycle, because they are very successful and therefore SAFErs never need to be converted and investors will never be reimbursed, unless there is a change of control. This is really a risky bet by an investor, especially a retail investor. The underlying concepts of a convertible loan are known and usually take the form of a short-term loan agreement, secured or not, with an indicated interest rate and maturity date, which can then be converted into the company`s equity in a successful future financing cycle (often with a discount). I have had a few clients who want to classify SAFE as long-term debt and others as equity. Thanks to legal proceedings and confusions, verification by regulators and colleagues, I can finally say that I am the official.

Unofficial accounting guidelines, which I think will apply to most common SAFE agreements. This accounting treatment has been audited and approved by the SEC on the basis of actual facts and circumstances. As a disclaimer, since all SAFES are different, this guide may not apply to all SAFE. It is important to note that prior to the conversion of SAFE into preferred shares, SAFE investors do not own shares (preferred or common shares). Depending on the terms of SAFEs, it is possible that successful startups will continue to work indefinitely without ever completing a cheap equity funding round and that, therefore, in such a situation, SAFEs can never be converted into shares. In this scenario, SAFE investors can simply lose their investment completely without anything to show. This possible scenario where DE SAFE investors will completely lose their investments without anything in return is not only hypothetical. Real cases have emerged. Since ES is not a debt instrument, companies are not obliged to repay the cash provided.

And SAFS can only be converted into preferred shares in the event of preferential financing, as expressly provided for in the SAFE agreements. In the case of SAFEs, the key variables that influence the amount of billing are the price of preferred future shares, as it will be traded in the future preferred share funding round (if and when) and the conversion price, which depends on both the valuation cap traded in the SAFE agreement and the number of fully diluted outstanding shares. . . .