Developed in 2013, the start-up-friendly financing mechanism called the Simple Agreement for Future Equity (SAFE) was designed to replace convertible bonds. You may be one of the many investors who have acquired SAFE stakes in start-ups. The more likely or certain it is (based on the circumstances of the issuance of the SAFE) that the SAFE will be converted into shares, the greater the support for the treatment of the SAFE as an equity subsidy. For example, if the SAFE is issued at a time when equity financing (and therefore conversion) will take place very quickly after it is issued, issuing the SAFE is more like raising equity than a derivative. SAFEs are supposed to be simple and flexible agreements that offer little trading space beyond the valuation cap or the maximum valuation at which safe will be converted into equity.
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