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. We have a standard agreement for all our investments. We invest $1250,000 in a “post-money” agreement for future capital, and we enter into an agreement with the company and the founders that defines certain specific YC guidelines and rights, including a right to participate in future corporate financing cycles (the “YC agreement”). Paul Graham and yCombinator recently created and publicly recommended the use of FAS in convertible bonds. For more information about SAFEs here: ycombinator.com/safe/. From the #1 stage, YC is expected to own 7% of the company. However, new depositors and the option pool should #2 step by step and #3 the YC safe and all other converted safes, provided these safes are standard post-money safes. We have a right to participate pursuant to YC`s agreement to acquire up to 4% of the new securities issued in the financing. If we make use of our right to participate, #3 incorporates us a new additional investment. It is important to note that in the end, YC #3 with less than 7% ownership at the stage, even if we take our 4% participation fee. Secure conversion financing: In a price cycle, provided that all safes are post-currency, 3 things usually happen at the same time, but the calculations are specifically arranged: the new safe does not change two basic characteristics that we consider important for startups: we invest in American, Cayman, Singaporean and Canadian companies.
We have founders applying for YC from around the world, and many have already become familiar with their home countries. We present to the founders lawyers who can develop the best process for setting up a business (or parent company) in a jurisdiction in which we can invest. Often, the founders retain their original unit as a subsidiary of a new parent company and the original unit will continue to operate in their home country. Non-profit organizations receive a $100,000 donation. We receive nothing in exchange for our donation. Finally, it is sometimes difficult to compare the offers of different accelerators. What is important is that we do not charge companies fees to be part of YC. We understand the complex reasons why some accelerators levy royalties on companies that participate in their programs and, while we do not believe this is bad behaviour, founders should naturally deduct these costs from the investment when considering these offers. We also strive to avoid all terms “gotcha” such as improved yields in downside exit scenarios and similar provisions.
The exact conditions of a SAFE vary. However, the basic mechanics are that the investor makes available to the company a certain amount of financing at the time of signing. In return, the investor will later receive shares in the company in connection with specific contractual liquidity events. The main trigger is usually the sale of preferred shares by the company, usually as part of a future fundraising cycle. Unlike direct equity acquisition, shares are not valued at the time of SAFE signing. Instead, investors and the company negotiate the mechanism with which future shares will be issued and defer actual valuation.