There are four versions of the new post-money safe as well as an optional letter of receipt. As the security of a single flexible document without many trading conditions, start-ups and investors save money in legal fees and reduce the time spent negotiating investment terms. Startups and investors generally have only one point to negotiate: the valuation cap. Since a safe does not have an expiry date or maturity date, no time or money should be spent on extending maturities, reviewing interest rates or otherwise. From an entrepreneur`s point of view, some people, by balancing these variables, may argue that the SAFE rating is the most advantageous instrument for increasing seed investment. What for? Because it doesn`t require a due date, interest or conversion date (if you can`t increase a favorite series round). SAFE NOTES are a fantastic tool for entrepreneurs to take into account when looking to increase their first sperm investment rounds. Some investors who earn host money will look to lock in their bonds for five years, as this can help them earn the small business gains exclusion under Section 1202 of the U.S. Tax Code. The IRS has yet to determine how it will work, but from now on it looks like it will be very similar to a sale of warrants.
A CEO of a company may forget the multiplier effect that occurs in calculating the valuation based on money. When an entity issues additional debt, equity continues to move away from the original ceiling, creating greater disparities between its pre-money and post-money valuations. New investors and business creators often face tensions in negotiating agreements, especially when they cooperate in the first round of actions. This is one of the first experiments when both parties see the real conditions of the dilution of the company. Our first safe was a „pre-money” safe, because at the time of its launch, startups collected smaller sums of money before collecting a funding cycle (typically a Preferred Stock Round Series). The safe was a quick and simple way to get the first money into the business, and the concept was that safe owners were only early investors in this future price cycle. But fundraising, staged early on, grew in the years following the introduction of the initial safe, and now startups are raising far more money than the first „seeds” funding cycle. While safes are used for these seed rounds, these towers are really better regarded as totally separate financing, instead of turning „bridges” into subsequent price cycles. If I invest $20,000 through a safe, the company will use that money to set up the business. But 20K doesn`t go that far. As soon as they progress, they may want to find more money.
Suppose they find an investor who wants to buy 20% of the business for $2 million. If 20% of the business is worth $2 million after investing, that means the valuation after the money is $10 million. A „SAFE” is an agreement between an investor and an entity that grants the investor rights to the company`s future equity, which are similar to a share warrant, unless a certain price per share is set at the time of the initial investment.
