NIGERIA: LEGAL ASPECTS OF SAFEs (SIMPLE AGREEMENT FOR FUTURE EQUITY)
Margaret Akpa
What is a SAFE?
SAFE stands for “Simple Agreement for Future Equity.” Y Combinator introduced this concept in 2013 after finding that founders of pre-revenue companies were having difficulty raising their first round of funding.
The standard form of SAFE was updated in 2018 as the Post-Money SAFE: our discussion here will be focused on this form of SAFE.
SAFEs are a form of convertible financing. To understand how SAFEs work, it helps to first understand what convertible notes are. Convertible notes are short-term debt instruments that convert to equity upon a predetermined event—typically a priced financing round or a liquidation event like an acquisition.
NOT ALL SAFEs Are Created Equal
Although SAFEs were designed to be standardized some companies will use SAFEs that don’t follow the standard form.
Since a SAFE is a relatively standard agreement, there is no need for lengthy negotiations on comprehensive investment agreements. A SAFE defines clear rules about the investor’s rights (which include, inter alia, rights similar to those the next investors in the company receive during future rounds of funding).
Margaret Akpa is a Human Rights Lawyer based in Abuja.
Contact: margretakpa77@gmail.com
