What is a SAFE?
You might be wondering – “What exactly do I get as an investor for my money?” The fundraising vehicle we’re using on Wefunder is called a Simple Agreement for Future Equity (SAFE). It was developed in 2013 by notable startup incubator Y Combinator, specifically designed for startups seeking early stage investment.
How Does a SAFE Work?
The basic premise of a SAFE is that investors are putting money into the company now, but the valuation of the company won’t be determined until a future date. There’s a couple of benefits to this structure for both investors and the company. While a business has an existing product but is pre-revenue (like Manna) it can be difficult to pin down a concrete value of the company as a whole. This poses the risk of picking a valuation that’s too high and unattractive for investors, or one that is lower than the asset value of the company between its employees, proprietary technology, and cash on hand.
The SAFE solves this problem by establishing the value of the company at the next round of fundraising, and rewarding current investors with a discount for being early compared to future investors. In our case, the SAFE offers a 20% discount on future equity (25% currently as we still have some of the early bird bonus available!) and a $10 million valuation cap (currently $8 million).
This means that WeFunder investors will get a guaranteed discount on whatever valuation the company achieves in its next round of fundraising, and at that date their capital will convert into equity in the company. The valuation cap also protects investors in the event that Manna achieves a valuation higher than $10 million on it’s next round.
Long story short, it’s good for everyone involved. Thanks for joining us!
– Josh Abady | Co-Founder & COO