How Safe Is a SAFE?
This post was originally shared here by Devin Thorpe
Today, I’m going to dig into a fairly nuanced area of crowdfund investing. If you’d like to make more money with your money by investing directly in private companies—and who doesn’t—please invest the time to learn more about SAFEs.
What Is a SAFE?
A SAFE is a Simple Agreement for Future Equity. The idea gained traction after the prestigious Y-Combinator accelerator began using a standard form of the instrument for its early-stage Silicon Valley startups.
The Securities and Exchange Commission published this definition with an embedded caution:
A SAFE is an agreement between you, the investor, and the company in which the company generally promises to give you a future equity stake in the company if certain trigger events occur. Not all SAFEs are the same and the very important terms governing when you may get the future equity may vary across the SAFEs being offered in different crowdfunding offerings. Despite its name, a SAFE may not be “simple” or “safe.”
Note that the emphasis is in the original document.