In 2013, Y Combinator created the SAFE (Simple Agreement for Future Equity). This has become a popular early-stage investment vehicle for founders and investors.
Since then, accelerators, angels, and early-stage investors have adopted the SAFE, and in certain cases edited and added language of their own.
Now, many new startups use SAFEs for early-stage fundraising, YC-backed, or not, with the goal of maximizing ownership and returns for both founders and investors.
But are SAFEs always safe for investors and founders?
Short answer: sometimes.
Like many securities, SAFEs have pros and cons for both companies and their investors.
When to use a SAFE?
For Founders:
The SAFE form is relatively simple, so many founders in accelerators and first-time founders prefer it to convertible notes. There are fewer variables and terms to negotiate than convertibles, so deals can get done quicker.
- Less negotiation time = less closing and legal fees
- SAFEs don't typically pay interest
- The company isn't obligated to repay the investment
- No guarantee that the investor receives equity
- SAFEs only convert to equity if triggers are reached
- no deadline for conversion, giving the company flexibility on timing a priced round
For Investors & Angels:
Safes can offer angels and VCs anti-dilution protection before converting into equity. SAFEs also offer the option to convert to equity if the startup gets acquired before a natural conversion, such as a change of control provision.
- Less negotiation time = less closing costs and legal fees
- No Qualifying Transaction hurdle blocking the equity conversion
- SAFE investors get the benefit of a discount and/or valuation cap (similar to convertibles), which can increase value in their investment.
Safes are not bad for entrepreneurs: https://t.co/5ZeDHYE8oV
— Y Combinator (@ycombinator) July 11, 2017
When not to use a SAFE?
For Founders:
Founders will suffer any extra dilution that comes from later funding rounds using convertible securities before an equity round that converts everything. If dilution is important to the founding team, this could be a concern.
- If this is important, you’re going to spend time and money negotiating with VCs (typically with deeper pockets and more expensive lawyers than you), so you’ll spend more on closing and legal costs
- Some VCs, CVCs, and other institutions don’t like SAFEs. Depending on who is in the deal, you may not have the option to do a SAFE if you don’t have negotiation leverage with your investors.
For Investors & Angels:
- No maturity date means no forcing function on the founders / company
- No interest accrual means no time value on the initial investment if it fails
In Conclusion: whether you're an investor or founder, be sure to weigh your options and play it SAFE. Talk to your lawyers or DM us for a referral.
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Read more about SAFEs
Primary: YC's four versions of the new post-money safe, plus an optional side letter:
- Safe: Valuation Cap, no Discount
- Safe: Discount, no Valuation Cap
- Safe: Valuation Cap and Discount
- Safe: MFN, no Valuation Cap, no Discount
- Pro-Rata Side Letter
Secondary
- The Complete Guide to SAFEs - Josh Ephraim
- SAFE Notes Vs. Convertible Notes - Alejandro Cremades
- A Founder’s Guide to Convertible Notes and SAFEs vs. Equity - Jason Lemkin
- Silicon Hills Lawyer - SAFEs archives
- Carta’s SAFE and convertible note calculator
- SAFEs: The (Not So) Simple Agreement for (Potential) Future Equity - Mintz Levin
Sources:
- Crunchbase, LinkedIn, Twitter, Mintz Levin Law, Cooley, Gunderson, Carta websites, and blogs, others linked throughout.
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Deal News 7/11-7/17
Seed
- Carbonated raises $8,500,000 led by Andreessen Horowitz | Carbonated is focused on developing highly competitive games for mobile devices.
- cohesion raises $6,500,000 led by Hyde Park Angels (HPA) | Smart building IoT / SaaS platform and mobile app
- Real raises $6,000,000 led by Forerunner Ventures | Real is making mental wellness an essential part of wellbeing.
- Quaestor raises $5,800,000 led by 8VC | Quaestor is an automated data platform that enables financial transparency between startups and investors.
- Trackstreet raises $5,100,000 led by Okapi Venture Capital | Trackstreet monitors whats happening with your brand across the Internet and delivers actionable market data.
- Noteworth raises $5,000,000 led by Laconia | Noteworth connects healthcare organizations with patient-generated health data to improve patient engagement on an ongoing basis.
- POD raises $5,000,000 led by PACA Ventures | POD is a Social Media App that puts its user on the map and believes in the power of real connections.
- Ergatta raises $5,000,000 led by Greycroft | Ergatta is a fitness startup that provides competitive games to deliver full-body workouts through home fitness services.
- Macro raises $4,300,000 led by FirstMark, General Catalyst, Underscore VC | A super-powered, customizable interface for Zoom, reimagined for collaboration and inclusive conversations
- Enduvo raises $4,000,000 led by MATH Venture Partners | Enduvo allows companies to create interactive and immersive AR and VR training for their business.
- env0 raises $3,500,000 led by Crescendo Venture Partners | env0 is the first self-service cloud management platform for infrastructure as code (IaC) architecture Bbot raises $3,000,000 led by Craft Ventures | Bbot is a restaurant and hospitality tech startup dedicated to simplifying and improving the ordering and payment process.
- Eterneva raises $3,000,000 led by Springdale Ventures | Eterneva is a developer of diamond technology intended to convert cremated ashes of loved ones into memorial diamonds.
- Evertas raises $2,800,000 led by Morgan Creek Capital Management | Evertas is a cryptoasset insurance company.
- PocketList raises $2,800,000 led by Craft Ventures | PocketList is a rental platform that shows exclusive info about places to rent months before they go on the market.
Series A
- Adagio Therapeutics raises $50,000,000 led by Mithril Capital Management, Polaris Partners | Adagio Therapeutics is offering research and development of therapeutic pharmaceuticals.
- Bond Financial Technologies, Inc. raises $32,000,000 led by Coatue Management | Bond is an enterprise-grade financial technology platform streamlining the integration between brands and banks.
- Traceable raises $20,000,000 led by Unusual Ventures | Traceable is a startup developing an end-to-end cloud app security solution.
- TileDB raises $15,250,000 led by Two Bear Capital | TileDB is a provider of a universal data engine that allows people to access, analyze, and share any complex data with any tool.
- Snorkel AI raises $15,000,000 led by Greylock | Snorkel AI is a company focused on making AI practical.
- GYANT raises $13,600,000 led by Wing Venture Capital | GYANT is an AI-enabled health platform that provides patient-doctor engagement services.
- Abacus.AI raises $13,000,000 led by Index Ventures | Abacus.AI is artificial intelligence research and AI cloud services company.
- Crisp raises $12,000,000 led by FirstMark | Crisp is an open data platform connecting thousands of companies across the food industry.
- Mori raises $12,000,000 led by Acre Venture Partners | Mori is a developer of an edible and natural biomaterial coating that extends the shelf life of perishable foods.
- Qualio raises $11,000,000 led by Storm Ventures | Qualio is a SaaS quality management platform that provides scalable quality management services for life sciences companies.
- Privacy.com raises $10,200,000 led by Teamworthy Ventures | Privacy.com is a virtual card platform that provides secure payments for businesses and consumers.
- CYR3CON raises $8,200,000 led by Pivotal Group | CYR3CON predicts cyber-attacks through a suite of solutions using artificial intelligence.
Series B
- Medly Pharmacy raises $100,000,000 led by Greycroft, Volition Capital | Medly Pharmacy is a digital pharmacy platform that offers free, same-day prescription delivery.
- Cityblock Health raises $53,500,000 led by Kinnevik AB | Cityblock is a healthcare company that addresses the root causes of health for underserved urban populations.
- Caption Health raises $53,000,000 led by Data Collective DCVC | Caption Health is a medical company that uses artificial intelligence (AI) to interpret ultrasound exams.
- Glympse Bio raises $46,700,000 led by Section 32 | Glympse Bio is a biotechnology company that provides synthetic biomarkers for monitoring multiple human diseases.
- Gem raises $37,000,000 led by Greylock | Gem is a recruiting platform that integrates with third-party applications such as LinkedIn, Gmail, etc.
- Paige raises $20,000,000 led by Goldman Sachs Merchant Banking Division | Paige builds software to advance the diagnosis, treatment, and biomarker discovery for cancer.
- NowRx raises $20,000,000 led by SeedInvest | NowRx is a pharmacy and last-mile logistics company that provides same-day and same-hour prescription medication delivery.
- Sourcegraph raises $5,000,000 led by Felicis Ventures | Sourcegraph makes code search universal so developers can work on solving problems.
Series C
- Thrasio raises $260,000,000 led by Advent International | Thrasio is an acquirer of Amazon third-party private-label businesses.
- Imvax raises $112,000,000 led by HP WILD HOLDING AG | Imvax is a biotechnology company focused on the development of novel patient-specific vaccines and immunotherapy strategies.
- Skydio raises $100,000,000 led by Next47 | Skydio uses artificial intelligence to create flying drones that are used by consumers, enterprises, and government customers.
- BlueVoyant raises $68,000,000 led by Temasek Holdings | BlueVoyant is a cybersecurity company that enables cybersecurity defense and protection through technology and tailored services.
- Bolt raises $50,000,000 led by WestCap | Bolt is a developer of an online payment platform used to drive e-commerce businesses with newfound revenue.
- Openpath raises $36,000,000 led by Greycroft | Openpath Security offers mobile and cloud-enabled access control system for businesses and landlords.
- Next Century Spirits raises $6,000,000 led by Blue Hill Group | A Raleigh, N.C.-based company that combines traditional distilling techniques and finishing technologies to create enhanced spirits.
Series D
- BioAtla raises $72,500,000 led by HBM Healthcare Investments AG, Soleus Capital | BioAtla develops safer, more effective drugs for cancer using a proprietary next-generation antibody discovery and evolution platform.
- Lattice raises $45,000,000 led by Tiger Global Management | Lattice is a people management platform that empowers people leaders to build engaged, high-performing teams.
- NS1 raises $40,000,000 led by Energy Impact Partners | NS1 provides accurate control over application delivery that values interaction with customers.
- Applicaster raises $11,000,000 led by Viola Growth | Applicaster is a software company that simplifies the creation, delivery, and management of over-the-top video applications.
Series E
- Qumulo raises $125,000,000 led by BlackRock Private Equity Partners | Qumulo provides a file data platform for multi-cloud environments with large scale file data.
- GoSecure raises $20,000,000 led by Yaletown Partners | GoSecure is an information technology company that specializes in cybersecurity, cloud security, and network security.
Series F
- Robinhood raises $320,000,000 led by IVP, TSG Consumer Partners | Robinhood is a stock brokerage that allows customers to buy and sell U.S. stocks, options, ETFs, and cryptocurrencies with zero commission.
- Auth0 raises $120,000,000 led by Salesforce Ventures | Auth0 operates a cloud-based identity platform for developers.
