At the end of 2013, Y Combinator published the Investment Instrument Simple Agreement for Future Equity (SAFE) as an alternative to convertible bonds.  Since then, this investment vehicle has become popular in both the United States and Canada, due to its simplicity and low transaction costs. However, as use has become increasingly frequent, concerns have been raised about the potential impact on entrepreneurs, particularly when multiple SAFE investment cycles are completed prior to an assessed capital cycle, as well as the potential risks for non-accredited crowdfunding investors who could invest in equity of companies that, realistically, will never receive venture capital funding and therefore never trigger a conversion into equity.  SAFEs are instruments that 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. The startup (or any other company) and the investor enter into an agreement. You trade things like: At Dorm Room Fund, we invest with unlimited SAFS without discounts, 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. The exact conditions of a SAFE vary. However, the basic mechanism is for the investor to provide specific financing to the company when it is signed. . . .