In 2018, Y Combinator modified the SAFE agreement template to allow the company to change it without obtaining the consent of certain investors. The company must obtain the consent of the investors, but it does not need to obtain signatures at all. The SAFE Agreement has been translated into several languages and applied in many jurisdictions. Startups in India have a version of the SAFE agreement. There is also a Spanish-translated version that Chilean and Spanish-speaking startups use. American companies are excellent with branding and acronyms. But although these other versions can be called “SAFE” agreements, they do not respect the terms of the original Y Combinator SAFE agreement. The name sounds the same, so marketing is much easier. But the terms can be very different. One of the dangers for international lawyers is that if they are looking for SAFE agreements to use in drafting, they can find scammers. There are contracts called SAFE that are not identical to the Y Combinator SAFE agreement. These other agreements are thus titled by the creator of the contract solely for marketing purposes. Fortunately, there are several well-written SAFE documents in the spirit of the original SAFE agreement.
For example, an Estonian company has a SAFE agreement that has very little in common with the original version. The Estonian version provides for an expiry date. But the original SAFE agreement is not a debt instrument, so there is no maturity date at all. GUEST: Matias Vukusic is a Chilean startup lawyer who handles many SAFE deals in the venture capital industry. It is vukusic.cl available on Twitter, LinkedIn or its website. The SAFE agreement was first developed by Y Combinator in 2013 and consists of a startup and an investor. In exchange for early capital, the startup promises to convert the funds into future shares or shares of the company when the startup starts raising funds in price rounds. Startups often use SAFE agreements because it is difficult to evaluate their business in the early days. The two terms you`ll hear most often in SAFE agreements and most seed funding agreements are pre-money valuation and post-money valuation.
Pre-money is the valuation of the business before investments take place. Post-monetary valuation often refers to the value of the company after an investment cycle. B for example the sale of a round of Series A shares. The SAFE agreement is only about six pages long and can be executed quickly. This is a significant advantage over traditional legal documents, which span dozens of pages and can take months. Although there are now several versions of the SAFE agreement, it is the most commonly used document by start-ups when raising capital. Matias Vukusic [00:02:19] In its essence, it is the sure way for future fairness. That pretty much sums up what the document is. It is an agreement between a startup and an investor that promises the investor that he will convert the money given to the startup into shares or shares of such a company at a later date.
When the startup raises funds for a price round. So, it`s basically for startups in the start-up phase. The most important thing to remember is that your company cannot get a good deal unless the specific SAFE agreement is reviewed by a lawyer and modifies the clauses according to your situation. Unfortunately, this takes some time. And in this world, time is the only thing startups don`t like to spend. The valuation of the company is crucial for the SAFE investor because the value of the company determines the percentage of the investor`s equity at the time of the triggering event. The first Y Combinator SAFE deals were pre-monetary valuations, but today most investors prefer SAFE deals after money. Mike Whelan [00:00:35] In this episode, Chilean lawyer Matias Vukusic tears up the Y Combinator Safe Agreement or the Simple Agreement for Future Equity.
Matias talks about identifying safe deals for scammers, determining the adequacy of a very young company`s board and shares an exciting announcement about the future of the contract demolition show. Y Combinator Safe Agreement is a key document for any young startup, so let`s demolish it. Although the company gets its money faster, by using a SAFE deal after the money, founders may experience greater dilution than with other types of fundraising agreements such as convertible bonds or Keep It Simple Security agreements. Matias Vukusic [00:03:48] Yes, it is the same one that has been translated into several languages and applies to different jurisdictions. There`s even on a credit page that you can even find ice caps that say like India, let`s use them for India-based companies, for startup base in India. Even in Chile, there is the Academy, an organization founded by local venture capital firms, and they have their own version of the secure agreement in Spanish. But what it is, they usually don`t respect what the safe is, and they mostly use the name, they say. I mean, you guys, you Americans are great with acronyms.
You have the safe like The Keys. How, keep security simple. You make the boss believe that you`re doing well, and you`re awesome. How do you like it when this marketing looks like documents, right? And that`s where demolition usually begins. For example, if you like something, a document called a safe, but then you start checking it and it`s not so safe. I mean, for example, as with some lawyers, investors tend to design convertible bonds, and they give them the name, let`s say, you know, because it sounds chic and marketable. But they are very different from the Y combiner, like when I prepared this because I only did my job for example, I did it and I came across a document that is actually easier to understand the future equity of the company. But it had nothing to do with Y Combinator.
Things like, for example, these Estonian companies had a maturity date and say that they are not such large debt securities, do not happen to this day. So that`s one thing that for us, as international lawyers, is that whenever we go through Law Insider, we can find documents called Say It or like Tableau. It`s something, but they`re not who they say they are. But fortunately, there are also a lot of good documents, and there are states that are really websites and not just marketing words for you that bring your family, friends together and fall into the early stages. That is the case. I shouldn`t say falls. We say fans who say big, family, friends and believing fans. Matias Vukusic [00:02:52] Yes, I am a lawyer here in Chile. I deal with startups and in the venture capital industry and secure agreement or what is usually called a secure agreement.
The different versions of it are probably one of the most commonly used investment documents for startups in the start-up phase. .