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Start-ups need SAFE, you can help

In today’s email let me introduce you to ‘simple agreement for future equity’ (SAFE). 

What is SAFE? 

A SAFE (simple agreement for future equity) is an agreement between an investor and a business to provide rights in future equity of the company like a startup who may not have any stocks to sell. 

Basically it is a quick and simple way of providing companies with cash in exchange for the promise of future equity.  

The SAFE investor receives the future shares whenever the company decides to liquify the stocks.

When is SAFE used? 

When an investor decides to invest in a start-up to raise capital, a SAFE can be entered between the investor and the start-up

A SAFE is a type of convertible debt/note which is structured as loans with the intention of converting to equity. 

Unlike equity, convertible note/debt begins as a loan that the company is contractually obligated to repay, but may convert into equity such as preferred stock upon the occurrence of a specified event or events

SAFE are contractual rights to purchase the company’s equity at a future date, similar to warrants, but the conversion price remains undetermined until a later date

Why is SAFE important?

SAFE was introduced by Y-combinator, a seed funding start-up, to raise smaller amounts of money in advance of raising a priced round of financing. 

The SAFE was a simple and fast way to get that first money into the company, and the concept was that holders of SAFEs were merely early investors in that future priced round. 

SAFE doesn’t typically accrue interest or have a maturity date, which reduces the risk of the company facing an insolvency problem.  

Until the investors convert their rights into stock, SAFE holders typically have no management rights and do not share in any dividends that are paid.  

SAFE is changing how venture capitalists invest in start-ups

An “idea” for business needs money to experiment if the idea has the likelihood to become a profitable business in the future. 

This “idea” doesn’t have any place in the books of creditors like banks or NBFCs to invest in. 

An angel investor would see the potential in this idea to conduct their pilot experiments and develop their product / software / technology by investing a small amount (say ₹5lacs). Once developed, the creators will pilot it with a few small clients

If the pilot experiment is successful they can approach seed investors for raising a large sum of money (₹20 lakhs to 1.5 crore) to expand it to multiple clients. 

Many businesses like Uber and AirBnB were formed this way. 

Earlier, startups used convertible notes with investors. A convertible note is a hybrid between debt and equity, functioning as debt until some point in the future, when it can convert to equity once a specified event occurs.

There were two problems with convertible notes that bothered the start-ups and investors: 

  1. interest –  before that conversion happens, the debt typically accrues interest rate.
  2. maturity date for repayment.

Y-combinator saw the potential to resolve these two issues by introducing SAFE which were designed to be simple to understand and are faster to generate than convertible notes, typically with lower costs. 

The SAFE structure allows emerging companies to receive much needed funding, without the risk that it might reach a maturity date before concluding an equity financing. And because a SAFE is not a loan, it will not accrue interest. Another advantage for startups is that SAFEs, by not being debt, are not reflected on the company’s balance sheet.

How to draft a SAFE?

21st century is called the start-up generation. Thanks to the ecosystem built around the world, more people are coming out with their ideas to convert them into businesses. 

It is cool to be a founder of a start-up or working in one. 

Also because of new ideas that the start-ups bring to the table, old professions are going obsolete. 

Taxis are replaced by ubers, cheques are replaced by online payments, radios are replaced by virtual assistants.

In no time, you will find clients asking you to help their businesses to enter into agreements with start-ups and drafting an agreement like that of SAFE will be very important.

Knowing how to draft an agreement like SAFE will help you pitch to big law firms for jobs. Who wouldn’t want a lawyer who knows international work? 

During the 3-day bootcamp on How to kickstart your career as a corporate lawyer we will teach you how to draft a SAFE (simple agreement for future equity) for an early stage investment transaction. 

You will also receive a free template of the SAFE if you attend this bootcamp. 

Date and Time

12-14 June 2021

6-9pm Indian Standard Time

REGISTER NOW

If you have already registered for this bootcamp then don’t forget to save this event in your calendar: 

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Skills you will learn during the 3 days of the bootcamp:

Along with drafting a SAFE you will also learn the following skills: 

  • How to draft a US-law compliant share purchase agreement and perform legal work for transfer of ownership in a C-Corp?
  • How to draft bylaws of a Delaware C-corporation?
  • How to draft a US-law compliant share purchase agreement and perform legal work for transfer of ownership in a C-Corp?
  • How to convert an LLC or S Corp into a C-Corp or vice-versa?
  • How to perform legal work for a merger of a US corporation in one state with a company in another state?
  • How to draft a convertible note for an early stage investment transaction?  

FREE GIVEAWAYS

If you attend for more than 2.5hours each day you will receive the following templates in the form of PDF which will help you kickstart your career as a corporate lawyer: 

Day 1: Bylaws of a Delaware C-Corp, Checklist of actions for transfer of ownership of a US company 

Day 2: Template of a SAFE Agreement 

Day 3: 12 templates on the last day-

  1. Checklist of registrations needed to incorporate and kickstart a US company 
  2. Checklist of annual and periodic compliances for a Delaware C-Corp and S-Corp
  3. Articles of incorporation and bylaws for an S-Corporation 
  4. Articles of organisation and operating agreement for LLC 
  5. Templates for Agenda, minutes and resolutions for a US C-Corporation Board meeting
  6. Template for Stock Certificate of a California, New York and Texas C-Corp
  7. US-law compliant share purchase agreement
  8. Memorandum and Articles of Association of an Indian Company
  9. Template of agenda, minutes and resolutions for the board meeting of an Indian Company 
  10. Checklist of Registers and Annual and Periodic Compliance Requirements for an Indian Company 
  11. Convertible Note Template
  12. Templates of agenda, minutes and resolution for a US C-Corporation Board meeting 

REGISTER NOW

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Looking forward to seeing you at the bootcamp. 

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