Charles Vethan: Hi this is Charles Vethan and welcome to another episode of the VLF video education series, today’s topic is the SAFE Company financing. S.A.F.E. stands for simple agreement for future equity. Cameron what are some of the advantages of a SAFE?
Cameron Weir: With a safe there’s two advantages one for the business owner and one for the investor, for the business owner it allows them to make sure that there is that separation between management and money investors these are quiet investors that are then contributing their money so that they get a preferred rate and they negotiate that rate.
Charles Vethan: When someone invests in a safe they receive no equity so they have no safe management they have no part of the company. Until there is a financing route that may happen in six months, a year, or five years, it depends. Now one of the important things with the safe is what’s called a pre-money valuation and that is actually a negotiated term. It is dependent on what the business owner believes his or her business is worth when they’re attracting money from friends family others. The investor on the safe side determines how much they’re putting in and what percentage they want of the company. So Cameron when we are looking at SAFEs as a means of financing, how important is the fact that someone who’s putting money into a business does not have any control rights as the business grows.
Cameron Weir: Well when we’re talking about safes you’re at a very key point in the businesses growth overall you’ve gotten a good idea off the ground and you’re starting to get to a point where you know you need more money to get it up to that next level and so those decisions that get made for the business at that point are absolutely critical. So if it’s going one way and investing in more equipment for the business that decision needs to get made by management whereas if the business has grown up to a level to where it’s time to start taking money out of it that should be a decision that’s made by management whereas the SAFE owner is just putting it in for an investment.
Charles Vethan: The advantage is this is with the SAFE today, most SAFEs are called post money safes so the conversion occurs after Equity has been put in, and the conversion from a safe to an equity occurs at the time that there is a priced route. Someone who gets in early to the company, they’re negotiating what percentage that they have of the company. Again this is not a form of stock yet but what percentage they usually get a much better deal as the company grows. For example, we we spoke with Persado LLC and its founder, Ricky Ford. We found out that the money that went in that he invested was used to to obtain patents and to help the company grow. So obviously when all this happens the value of the company increases so if someone had put a safe in and says I want five percent and I want to put in two hundred thousand dollars for five percent well when that converts to actual equity on a priced round that two hundred thousand dollars for five percent may be equal to someone who’s putting in 1.5 million for that same amount of money so I think that is one of the advantages of having investors invest early into a company and saves are probably one of the newer and more popular products out there thank you for joining us as we talked about safes if you have more questions please contact us at the Vethan law firm.