SAFE Rejected

Some investors are weary of SAFEs because they have not been tested in the courts. Convertible loans, the “standard” way of raising small rounds, have a large body of law to support its enforcement should something go awry. Also, SAFEs often do not contain clauses investors are used to or are different than what they would consider the norm. The SEC has recently written an article warning investors about SAFE so expect more pushback (included below). I have not used SAFE notes. I took a look at the two competing documents, SAFE and convertible loan, and did a deep dive on the differences. One notable difference is the lack of a time horizon/maturity on the SAFE, enabling you to take longer to raise and to avoid the down round. This can also be achieved through a convertible loan by lengthening the terms. There is no rule that convertibles need to be 2 years and pay 8% interest. What I did was to tell investors I was deciding between SAFES and Convertible and decided to choose convertibles because it is a more trusted form of investment, but I tweaked the terms to give more flexibility while aligning risks for both sides (4 or 5 year terms, low or no interest, added cap, keeping in rights of first refusal and other similar terms). It was combining the best elements of both instruments. I have not gotten push back on this method and in fact helped secure some investment I may not have gotten through a SAFE.

SEC Warns Investors About Dangers of SAFEs