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Are SAFE Investments Risky?
What Founders Need to Know
Imagine you’ve bootstrapped your way to a $2 million valuation without taking investment. Your MVP is netting over $200k of revenue a year. Partnerships are coming in and your product is the talk of the town. Things are good. Great. Fantastic. Well, except the fact that you’re running low on cash (moneys going out as fast as it’s coming in), and your board of directors is getting nervous. What’s more — you can’t take any money from the bank because you’re maxed out your line of credit. What do you do?!*
*This is an extreme example. You can enter into a SAFE at any time for a variety of reasons, not just when you’re cash-strapped.
Welcome to the world of SAFEs.
‘SAFE’ stands for ‘Simple Agreement for Future Equity’.
And it’s really just that. It’s a contract between your company and an investor. In exchange for capital, you promise the investor that they will be able to acquire shares in your company at a later date (i.e., the ‘future’ part) if a pre-determined event occurs (more on that later).
