A SAFE Note is a Simple Agreement for Future Equity. Our investment into your startup makes a cash investment into your company, for equity at a later date, in connection with a specific event, in which in our case would be a future, priced funding round (typically a Series A round of preferred equity but in certain cases may also be a seed round of common equity). A SAFE Note is a convertible security that, like an option or warrant, allows LAUNCH AFRICA Ventures to get equity in a future priced round. A SAFE Note is NOT a debt instrument, carries no coupon, and has no fixed maturity period, and is intended to be an alternative to convertible notes that are beneficial for both companies and investors. The LAUNCH AFRICA Ventures SAFE Note is priced at a 50% discount to the Post-Money valuation at the next capital raise.
- Debt instruments (including convertible notes) have requirements – including regulations, interest accruals, maturity dates, the threat of insolvency and in some cases, security interest and subordination agreements. These requirements can have unintended negative consequences
- A SAFE Note is intended to be simple for both companies and investors, with the usual path to agreement requiring the negotiation of only one item – the “valuation cap” or the “discount rate”. Because we fund several stages of an early-stage tech startup (from Seed rounds to Angel rounds to immediately pre-Series A), we standardize our SAFE agreements and do NOT offer valuation caps, but instead offer a fixed 40% discount to the post money valuation at the next priced financing round
- A simple equity security has the potential to become standardized, and a standardized form has the benefits of certainty and speed, which in turn results in lower (or lower) transaction costs for companies and investors. There are minimal to no legal costs associated with a SAFE Note financing round
- Most startups need to raise money soon after formation in order to fund operations, and the SAFE note can be a vehicle for investors to fund companies at that very early stage. Unlike the sale of equity in traditional priced rounds of financing, a company can issue a SAFE quickly and efficiently, without multiple documents and the necessity of a charter amendment. As a flexible, one-documented security, without numerous terms to negotiate, the SAFE should save companies and investors money and time
- Slightly later stage companies may also choose to raise bridging capital through our SAFE note as the equity allocated is directly to SAFE holders is linked only to its NEXT priced round valuation even if it may have raised a priced round prior to the issuance of the SAFE
- Launch Africa Ventures and the company agree on the amount of capital required (our typical terms are $250k), mutually date and sign a SAFE agreement, and Launch Africa Ventures sends the company the investment amount. What happens next? Nothing, until the occurrence of one of the specific events described in a SAFE i.e. an equity financing (like a Series A funding round, for example) or a liquidity event. In the meantime, an outstanding SAFE note would be referenced on the company’s cap table like any other convertible security (such as a warrant or an option)