Andrew Abramowitz, PLLC

attorney at law

 LinkedIn RSS E-mail
  • Home
  • Practice
  • Our Team
  • Fees
  • Blog
  • Contact

The Development of “SAFE” Instruments

September 18, 2018 By Andrew Abramowitz Leave a Comment

In early 2015, I wrote about SAFE instruments, which I then had heard about but not yet seen in my practice, with a gently mocking but grudgingly intrigued tone, which likely resulted from the trend having originated on the West Coast. (As a native New Yorker, I have been trained to roll my eyes at each new development from California and then promptly forget about that when I incorporate it into my life.) With over three years of experience with SAFEs in my practice, I thought it appropriate to update my post, less the cynicism, since they have become pretty common and accepted in the world of early stage corporate finance.

A SAFE instrument (Simple Agreement for Future Equity) is an alternative to convertible notes for startups seeking bridge financing to keep the lights on until they can raise substantial funds in a true equity round.  Y Combinator offers open source SAFE equity forms with some background information.  With a convertible note, the seed investor acts temporarily as a lender, with the note being converted to equity if and when the company completes a qualifying equity financing.  With SAFE equity, the investor simply receives the right to receive preferred equity when the qualified financing is completed, without the need to temporarily treat it as a loan.  There is no interest, maturity date, repayment terms or any other provisions that you’d associate with a debt instrument.

SAFE promoters correctly point out that these seed investors are not ultimately seeking a debt-like steady return on their investment.  As early-stage equity investors, they have more of a high risk/high reward orientation. Convertible notes are usually not repaid in cash. The more likely scenarios are that (1) they are converted into equity, or (2) the company fails to complete a financing and realistically is not able to pay back the note. In the first scenario, the accrued interest adds to the amount of shares issued upon conversion, giving the investors a windfall that they would not have expected by making a simple equity investment. With SAFEs, the investment is treated like an equity instrument, which reflects the intent of both parties.

The SAFE folks also tout the relative simplicity of the SAFE documentation.  There is only one five-page document to be executed, and there aren’t a lot of moving parts requiring much customization.  Essentially, the parties need to only agree on whether there is a cap on the valuation of the later financing for purposes of determining the number of shares to be issued to the investor, and whether the investor receives a discount on the conversion price when the later financing is completed.  In fairness, convertible notes are themselves fairly simple and are used because they are themselves much simpler than VC equity documents, but SAFE equity appropriately combines simplicity with avoiding introducing debt concepts where not intended.

Finally, the absence of a maturity date with SAFEs takes the time pressure off of the company to complete the equity offering within a particular timeline, though investors may prefer having such a deadline in place to incentivize a quick completion of an offering.

Related posts:

  1. Equity as an “Expensive” Form of Financing
  2. Series Seed Preferred Stock Documents
  3. “SAFE” Equity as an Alternative to Convertible Notes

Filed Under: Financing Transactions/Securities Offerings, General Corporate/M&A Matters, Startup Matters

What We Can Learn from Changes in Public SEC Filings

June 1, 2018 By Andrew Abramowitz Leave a Comment

Title III CrowdfundingPeter R. Orszag, writing in Bloomberg View, highlights a study of public SEC-filed Form 10-K annual reports, which found that companies that make changes to the disclosure in their 10-Ks from one year to the next tend to have lower stock returns than average after publication of those changes. The study found that a significant majority of the changes constituted disclosure of negative information, so the resulting decline in performance is not surprising.

[Read more…]

Related posts:

  1. Streamlining of Blue Sky Filings
  2. SEC Crackdown on Undisclosed Unregistered Offerings
  3. Legal Disclosure Requirements for Title III Crowdfunding

Filed Under: General Corporate/M&A Matters, SEC Disclosure Matters

The New York Times on Ownership of Real Estate by LLCs

May 2, 2018 By Andrew Abramowitz Leave a Comment

Preserving Anonymity with LLCs | Andrew Abramowitz, PLLCBack in January, before they truly became household names, I wrote about how the publicity around Michael Cohen’s use of an LLC to pay off Stormy Daniels fell into a larger narrative of how Delaware LLCs were being portrayed (unfairly, in my view) as equivalent to offshore shell companies, i.e., mysterious entities being used for nefarious purposes. Now, The New York Times comes along with a lengthy expose of how LLCs are being used to own real estate and enable bad behavior. [Read more…]

Related posts:

  1. Preserving Anonymity with LLCs
  2. New York’s LLC Publication Requirement
  3. Non-Attorney Ownership of Law Firms

Filed Under: General Corporate/M&A Matters

Share Buybacks as a Political Issue

March 2, 2018 By Andrew Abramowitz Leave a Comment

A year or two ago, the phrase “share buybacks” was a phrase only known to those in and around the world of corporate finance. It refers to a company’s use of available cash to purchase its own shares in the open market. The effect of this is to reduce the total number of shares outstanding, which makes the remaining shares more valuable. Recently, however, share buybacks have become enmeshed in political debates as shorthand for actions taken by corporate America and encouraged by Wall Street that are not in the best interest of workers and society generally. For example, The New York Times recently reported on how cash freed up by the recent tax cuts are being spent on share buybacks, as opposed to more worthy uses such as hiring new employees.

[Read more…]

Related posts:

  1. Whether to Pay Profits out to Shareholders
  2. Does My Company Need to Issue Stock Certificates?
  3. Income Share Agreements

Filed Under: General Corporate/M&A Matters, General/Miscellaneous

Saving Time with Online Cap Table Services

January 29, 2018 By Andrew Abramowitz Leave a Comment

Saving Time with Online Cap Table ServicesIn the past few years, my private company clients have been flocking to online, cloud-based cap table services, such as Capshare and Carta (formerly eShares), as a platform to manage the company’s back-office functions for their capital structure. Aside from presenting an online cap table for reference by potential new investors and others, these sites provide a number of other services, such as being an online repository for documentation like stock option agreements and facilitating company valuations under Section 409A of the Internal Revenue Code.

[Read more…]

Related posts:

  1. Income Share Agreements
  2. When Clients Demand One Person in a Personal Services Firm
  3. Division of Labor Between Law Firms and Corporate Services Companies

Filed Under: General Corporate/M&A Matters, General/Miscellaneous

  • 1
  • 2
  • 3
  • …
  • 7
  • Next Page »

Search the Blog

Blog Topics:

  • Crowdfunding
  • Financing Transactions/Securities Offerings
  • General Corporate/M&A Matters
  • General/Miscellaneous
  • Interesting Reads Archive
  • Legal Practice Advice
  • SEC Disclosure Matters
  • Startup Matters

Press Coverage

"Andrew Abramowitz, a lawyer in Manhattan who has worked with both buyers and sellers of private placements, said every investor should approach a private placement skeptically." -- Paul Sullivan (New York Times)

» Read more

"If the goal [...] is to protect people from losing all of their money in an illiquid investment, the current standard fails on that count, too. Andrew Abramowitz, a lawyer in Manhattan who has worked with both buyers and sellers of private placements, said a better standard might be to limit how much of their net worth people can invest." -- Paul Sullivan (New York Times)

» Read more

Sign up for Andrew Abramowitz, PLLC's Quarterly Newsletter

Your contact information is never shared or sold to any third-party.
* = required field

Browse the Blog

  • Crowdfunding
  • Financing Transactions/Securities Offerings
  • General Corporate/M&A Matters
  • General/Miscellaneous
  • Interesting Reads Archive
  • Legal Practice Advice
  • SEC Disclosure Matters
  • Startup Matters

Rankings & Awards

Ranked #7 nationally issuer legal counsel for total dollars advised in a PIPE transaction. (PrivateRaise.com January 2016)

Find & Follow

Follow Andrew Abramowitz, PLLC on LinkedIn.

Contact Info & Directions

©2019 Andrew Abramowitz, PLLC. All rights reserved. | 565 Fifth Avenue, 9th Floor, New York, New York 10017 | Legal Disclaimer