It’s no news that startups require a huge sum of money to start and continue their operations.
Money is needed to hire developers, designers, and the like, as well as for marketing.
SAFE is one of the easiest and fastest ways for startups to raise capital.
SAFE is an acronym that stands for Simple Agreement for Future Equity.
SAFE is a contract between a startup company and its investors, in which the basis of the contract is that the investor, in consideration of their investment, will be entitled to the right to preferred shares in the company when the company raises another round of funds in the future.
In simple terms, the investors are simply buying future rights to equity in your company.
SAFE is best suited for early startup companies that have little or no valuation. The investors understand that, at that stage of investment, your startup is worth nothing but choose to take the risk and invest anyway.
Some benefits of SAFE are:
It does not accrue interest or have a maturity date. The investors’ right to equity in the company is conditioned on certain activating events, and until those events happen, they have no right to equity in the company.
Also, there is no obligation on the founder of the startup to repay the investment if the SAFE doesn’t convert. Besides, it is a fast and easy way to raise capital.