Thanks-The video is super clear and very helpful. One quick question: Is the SAFE agreement subject to federal and state securities laws and regulations? Do I need to register the financing with the SEC and state regulators?
Good question. You don't need to file anything, that's the benefit of a SAFE. You just use the contract to get the financing and you're off building your empire! You should for sure have legal look at/write the contract and confirm with you that all your ducks are in a row.
Thanks for great teachings. Question So who/what controls right of investor to sell this contract or the business owner to buy it back? is that out of the scope of the SAFE contract? Can it be included, if so how and what are typical terms/provisions? thanks AJ in Michigan
Great question! Normally there is a "lead investor" assigned to be the point of contact for all SAFE holders in the round. This doesn't actually have to be the biggest investor, just someone that is assigned this position.
Is it reasonable if the SAFE to raise ceiling changes after your investment? Say I provided 25k with the expectation that only 1M was going to be raised under safe and owner changes the number to 4M. The scenario isn't covered under a simple safe agreement and the safe didn't have an initial valuation. Is there a recourse for the early investor? I see the downside as it will only convert under a lot higher valuation. Can I ask for a valuation cap after the fact?
Good question! That's the goal of a Valuation Cap so that the amount raised doesn't impact your initial investment. The determining factor of future dilution lies mostly in the valuation cap. If you didn't have a Cap in the SAFE contract, you'll need a different contract/amend the original to include that.
Once you obtain equity by this means, then how does the ROI go, hypothetically? If the company goes public or remains private, then what could you expect on a return in either case, percentage wise? though I know that may vary by company, but what do you look out for? How do you find that information out by their listing? I followed through from a comment on you unbanked investment video. Many are asking questions on Republic, about their extension from their $15m eval cap to the current round at a $115M eval cap & many were concerned..though they explained in many comments, that they had others want to invest,after tax season & they are doing a rolling close. Can you speak more on this situation? &/or do a follow up to the unbanked investment video to address this & in general my ROI question on a SAFE going public or remaining private? ie; does this equity convert to stock in an IPO in the future for example & if private,then what?
Good question! That mostly depends on two things: 1) the exit valuation (how much the company sells for in the future or what the public share price becomes) and 2) how much more funding (dilution) the company has in the future before exit. Let’s say there was no dilution and the company sold for $100M then you’d theoretically 5x your initial investment. With additional rounds that ROI could be much lower.
To be fair much of what I see described as passive income really isn't passive. Many people call property investment is passive incom but they are so wrong. How can you define something "passive" when you have to follow the trend, the market all the time. Passive income does not mean either "doing nothing to have money" or "other stream of income besides your 9-5 jobs". To me it means that you have to do something important steps at firsts, like researching, building your assets, putting you money on it, then in will pay you a certain amount of money later without you doing anything. My favorites passive income is the money i gain from leasing and buyback investment which requires me to do nothing. I just need to relax and wait for the money to run into my account. you can search the term leasing and buyback investment with foundation capital to know more.
