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. As a start-up, you come in agreement with other companies, suppliers, contractors, investors and many others. A lesser-known agreement is the Simple Agreement for Future Equity (SAFE). These agreements can be important for the success of a startup, but not all SAFE agreements are equal. 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. The SAFE investor receives future shares in the event of an investment price cycle or liquidity event.
SAFEs are supposed to offer start-ups a simpler mechanism to apply for upfront financing than convertible bonds. Dorm Room Fund is dedicated to supporting students across the country and helping them reach new heights — check out our 5-year report to learn more about what students can build. Unlike the converted debt, there is no debt with a SAFE. There is also no maturity date, which means that investors have to wait indefinitely before they can get their hands on the equity they have purchased, if they do. Another new function of the safe concerns a „prorgula“ right. The original safe required the company to allow holders of safes to participate in the financing round after the financing round in which the safe was converted (for example. B if the safe is converted into series group preferred actuators, a secure holder – now holder of a Series A preferred share subseries – is allowed to acquire a proportionate portion of the Series B preferred share). While this concept is consistent with the original concept of safe, it made no sense in a world where safes were becoming independent funding cycles.
Thus, the „old“ pro-rata right is removed from the new safe, but we have a new model letter (optional) that offers the investor a proportional right in the preferential financing of Series A on the basis of the converted safe property of the investor, which is now much more transparent.