THE INSTRUMENTSTHE INSTRUMENTS OPERATE IN THE SAME WAY AS A WARRANT. In exchange for capital, LES SAFEs recalls the agreement concluded with the investor according to which, during a subsequent financing round, a change of control of the company or the IPO of a company, the amount of the SAFE investment will be converted into equity of the company. Although they are similar in function, they differ from convertible bonds in that the amount invested under a SAFE is not a debt that represents interest or requires a monthly payment, does not yet have a maturity date. This is not a direct stake in the company, but a promise that the amount of the investment will be converted into equity in the future. This aspect of SAFEs puts investors in front of a fundamental concern. Investors do not benefit from protection under national company law or the Federal Debt Act, as would apply in the case of equity issuance, nor without fraud or other contractual means, if the SAFE did not change. At Dorm Room Fund, we invest with unsused SAFS without discount, but with an MFN clause. This means that if the SAFE is converted into equity, the founders end up having more of the company than if there was a cap or discount. If new investors buy shares for $1.00, it`s also the Dorm Room Fund. Our first vault was a “pre-money” vault, because at the time of its launch, startups raised small amounts of money before launching a cheap funding round (typically a round of Serie A preferred shares). The safe was an easy and quick way to get the first money in the business, and the concept was that safe owners were just early investors in this future price cycle. But fundraising at the beginning developed in the years following the launch of the original vault, and now startups are raising much larger sums of money than the first round of “Seed” funding.
While safes are used for these seed towers, these cycles are really better regarded as totally separate financing rather than “bridges” in subsequent price cycles. A SAFE (Simple Future Equity Agreement) is an agreement between an investor and a company that grants the investor rights for future equity in the company similar to a warrant, unless, without determining a certain price per share at the time of the initial investment. . . .