THE SAFE (SIMPLE AGREEMENT FOR FUTURE EQUITY) AS AN INVESTMENT INSTRUMENT
Nowadays, in order to make their business grow, entrepreneurs seek capital financing from third parties that allow them to develop their business, granting them in exchange a participation in the company.
As a result of the above, legal instruments have been created to support the transactions that take place between the entrepreneurs and the persons who invest capital in the business.
The SAFE (Simple Agreement for Future Equity) it’s a legal document in which the parties agree that an investor invests capital in the company, so that such capital is reserved for future capital increases, which can be capitalized once the conditions agreed by the parties are met.
In this sense, once the conditions are met, the investor may receive the number of shares agreed upon according to the valuation established at the time of the conversion or, if applicable, may request the return of the capital granted.
The clauses that may be agreed in the SAFE are as follows:
a. Conversion Scenario: This refers to the moment in which the SAFE can be capitalized and the company issues the agreed shares in favor of the shareholder.
The above, is done based on the price agreed by the parties, or if applicable, if negotiated plus a discount on such price, as well as a cap on the company's valuation.
b. Dissolution and liquidation: In this case, the investor is entitled to receive the return of the investment on a preferential basis in the event the company decides to dissolve and liquidate.
c. Liquidity events: In times of liquidity of the company, the investor may request to exit the company before the agreed conditions are fulfilled by means of the return of the invested capital, provided that there is liquidity in the company.
d. Preferential rights: On the other hand, preemptive rights may be granted to SAFE investors, who, by virtue of their trust in the business, have the right to request preferential participation shares in the company, as well as the right to subscribe capital under specific conditions in the event of future capital increases.
Derived from the above, it is important to mention that the SAFE is a legal instrument widely recommended for entrepreneurs who intend to raise resources for the financing of their business, which protects the interests of the parties involved.
At VILA we are specialists in providing corporate legal advice to entrepreneurs who intend to grow their business by raising resources from investors, proposing the most viable legal instrument in order to protect your interests as well as those of the investors.
For further information, please contact:
Frida Enríquez
