Our first vault was a “pre-money” vault, as startups were raising smaller amounts of money at the time of its launch before raising a low-cost financing round (usually a Series A preferred share round). The safe was an easy and quick way to get the first money in the company, and the concept was that the owners of safes were only the first investors in this future price round. But early-stage fundraising evolved in the years following the introduction of the original vault, and now startups are raising much larger sums of money than the first round of “seed” funding. While safes are used for these start-up rounds, these rounds are really best seen as completely separate financing, rather than “bridges” to subsequent price rounds. Our updated safes are therefore “post-money” safes. By “post-money” we mean that the ownership of safe holders is measured after (post) all the safe money has been settled – which is now its own turn – but always before (before) the new money in the price round that converts and dilutes the safes (usually the A series, but sometimes the Seed series). The post-money vault has what we think is a huge advantage for founders and investors – the ability to instantly and accurately calculate how much of the company`s property has been sold. It`s crucial for founders to understand how much dilution is caused by each vault they sell, just as it`s fair for investors to know how much of the company`s property they bought. To complicate things a bit, a SAFE sometimes has a discount. Since the SAFE arrives later before each investor, the SAFE investor may want the SAFE to be converted into shares at a discount to the subsequent funding round. Discounts are usually between 10 and 30%.
To illustrate, I modeled what 50% off will look like. Instead of buying shares at $1.00, the SAFE holder can buy shares at $0.50. Here is an example: A SAFE (simple agreement for future equity) is an agreement between an investor and a company that grants the investor rights for future equity in the company similar to a warrant, unless it does not determine a specific price per share at the time of the initial investment. The SAFE investor receives the futures shares when a round or liquidity event occurs. SAFERs are intended to provide start-ups with a simpler mechanism to seek start-up financing than convertible bonds. Using a SAFE contract can be a beneficial way to fund a startup, but it may not be the right option for all businesses. Startup founders should consider all their options and consider consulting with an expert before agreeing on funding. Some issuers have offered a new type of security as part of some crowdfunding offerings – which they have described as safe. The acronym stands for Simple Agreement for Future Equity. These securities are risky and very different from traditional common shares. As the Securities and Exchange Commission (SEC) notes in a new investor bulletin, a SAFE offering, regardless of its name, cannot be “simple” or “secure.” Whether you are using the vault for the first time or are already familiar with safes, we recommend that you read our Secure User`s Guide (which replaces the original security bootstrap).
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