Simple Agreement For Future Equity Balance Sheet
The risk-return profile of SAFE investments is that of venture equity in a start-up start-up and not debt (which includes the promise of a specific payment within a specified time frame). The objective of SAFE investors is of course that their SAFE investments be converted into preferred shares if and when the start-ups in which they invest make preferential financings in equities. But SAFE owners face two very real risks, which can and can sometimes prevent their goal from ever being achieved: our first safe was a “pre-money” safe, because at the time of their launch, startups raised small sums of money before setting up a cheap financing cycle (usually a Series A preferential equity round). The safe was a quick and simple way to get the first money into the business, and the concept was that safe owners were only early investors in this future price cycle. But fundraising, staged early on, grew in the years following the introduction of the initial safe, and now startups are raising far more money than the first “seeds” funding cycle. While safes are used for these seed rounds, these towers are really better regarded as totally separate financing, instead of turning “bridges” into subsequent price cycles. The launch of safe by Y Combinator is a great example of what Silicon Valley does best – innovation to make businesses cleaner, simpler, faster, more efficient and accessible to startup creators. Startup creators and their colleagues are very busy people, and their working time is most valuable for developing their technology, building their teams and caring for their clients – not for administrative burdens such as renegotiating convertible debt contracts with imminent maturities that settle on them. SAFE is a simple but brilliant innovation that protects startup creators from unnecessary administrative burdens and allows them to focus on the development of their business. ASC 815-40-15-7 states: “A company evaluated, if a financial instrument linked to shares (or an embedded feature), as described in paragraphs 815-40-5 to 15-8, is considered an indexed instrument for itself within the meaning of this sub-theme and in paragraph 815-10-15-74 (a): according to the SEC SAFS, the debt is considered debt rather than equity and should therefore be counted as debt on the balance sheet. I won`t bore you with their reasoning that most people (including most accountants) find dubious at best. Suffice it to say that the SEC`s SAFE reasoning, to the extent that it is sound, would also apply to bare arrest warrants. Those that, as has been discussed, have definitively said FASB/GAAP, are accounted for in equity.
And in Silicon Valley, accounting for SAFE is just as simple – SAFS are equity contributions from early investors in start-ups. FAS is not debt. The idea that someone is discussing the fact that they could go into debt is strange and ridiculous for the financial professionals who work in Silicon Valley. SAFEs were created to avoid debt overcompensation! (Of course, some “FAS” have a repayment obligation after a specified period of time. Such “SAFEs” are of course only SAFEs in the name.