O slideshow foi denunciado.
Utilizamos seu perfil e dados de atividades no LinkedIn para personalizar e exibir anúncios mais relevantes. Altere suas preferências de anúncios quando desejar.
May Be Hazardous to Your Returns
WARNING
Background
SAFE (Simple Agreement for
Future Equity)
KISS (Keep It Simple Security) NVCATerm Sheet
Created Y Combinator (Carolynn Lev...
SAFE (Simple Agreement for
Future Equity)
KISS (Keep It Simple Security) NVCA
Rationale &
Company
Benefits
q Incubator-fun...
SAFE (Simple
Agreement for Future
Equity)
KISS (Keep It Simple
Security)
NVCA
Negatives for
Angels
q Lacks investor protec...
Próximos SlideShares
Carregando em…5
×

Comparing SAFE, KISS and NVCA Term Sheets

661 visualizações

Publicada em

Term Warfare: Comparing SAFE, KISS & NVCA Term Sheets, by Ronald Weissman, Band of Angels. For the Angel Capital Assocation's Western Regional Meeting, Feb, 2007

Publicada em: Educação
  • If u need a hand in making your writing assignments - visit ⇒ www.HelpWriting.net ⇐ for more detailed information.
       Responder 
    Tem certeza que deseja  Sim  Não
    Insira sua mensagem aqui

Comparing SAFE, KISS and NVCA Term Sheets

  1. 1. May Be Hazardous to Your Returns
  2. 2. WARNING
  3. 3. Background
  4. 4. SAFE (Simple Agreement for Future Equity) KISS (Keep It Simple Security) NVCATerm Sheet Created Y Combinator (Carolynn Levy, 2013) 500 Startups (Gunderson Dettmer, 2014) NationalVenture Capital Assoc. (When dinosaurs roamed the earth) Structure q A promise to exchange currently invested $$ for equity at future financing ($250K minimum) or change of control or IPO q Convertible instrument with cap and/or discount, OR Most Favored Nation without a cap or discount q Cash returned (prorata) to all SAFE investors in event of dissolution or liquidity event q No maturity date q Not treated as debt obligation q Conversion at 250K equity round q A promise to exchange currently invested $$ for equity in the event of future financing including mechanisms to protect investors if financing does not happen.Two forms exist: q Convertible debt with cap and/or discount. 5% interest. q Convertible equity (just like convertible debt but with no interest). q 18 month maturity q Converts at $1M future equity round q Mechanisms exist for conversion if no equity round occurs q $50K investors granted information and participation rights q Most Favored Nation q A standard, priced equity round enumerating valuation and investor rights and protections q Usually includes some or all of these: q Liquidation preferences q Dividend q Stock option pool q Future investment rights, voting rights, Board rights, information rights q Control provisions Best for q Very small deals or insider bridge rounds q Equity sellers’ market q Very small deals or insider bridge rounds q Equity sellers’ market q Later/larger seed or Series A sized deals q Equity buyers’ market
  5. 5. SAFE (Simple Agreement for Future Equity) KISS (Keep It Simple Security) NVCA Rationale & Company Benefits q Incubator-funded companies receive too little capital for more than basic legal fees q Low cost & fast q Defer valuation negotiation q No debt on balance sheet q Since SAFE is not a debt, reduces insolvency risk if investment is never repaid and never converts to equity q Incubator-funded companies receive too little capital for more than basic legal fees q Low cost & fast q Defer valuation negotiation q Restore investor/company balance lost with SAFE q Comprehensive agreement with (sometimes) clear statements describing future outcomes across different contingencies and the rights of different classes of shareholders and stakeholders q Be perceived as a more mature company Angel Benefits q Attract startups to Angel group q Minimize complexity of very small deals q Enables conversion to equity in absence of future financing q Attracts startups while protecting Angels q Minimize complexity of very small deals q The way the grown up world works q Strong investor protections including control rights q Comprehensive, deals with most common contingencies
  6. 6. SAFE (Simple Agreement for Future Equity) KISS (Keep It Simple Security) NVCA Negatives for Angels q Lacks investor protections q No liquidation preferences q Unclear recourse if note not repaid or converted to equity q No control provisions q If SAFE lacks a cap, investors may be screwed q Stronger but still only moderate investor protections q No liquidation preferences q No control provisions q If KISS lacks a cap, investors may be screwed q May make angel groups less competitive than organizations willing to use SAFE or KISS Negatives for management q As a Cap is an implied valuation, it may require negotiation q If price at conversion < Cap, can be an implied down- round, a big negative q Gives management false sense that they don’t really need venture lawyers quite yet q As a Cap is an implied valuation, it may require negotiation q If price at conversion < Cap, can be an implied down-round, a big negative q Gives management false sense that they don’t really need venture lawyers quite yet q Insolvency risk from maturity date—and investors can force new terms q Weighted towards investors q Forces valuation negotiation q More time consuming q More complicated & costly q Management may not really understand future impact q Can create a risk of future insolvency–and investors can demand new terms when “Sword of Damocles” mandatory redemption date approaches

×