[Investment] What is a SAFE investment that skips the valuation process?

What is the biggest goal for early startups? It’s to gain recognition for our business model and quickly raise investment to expand the business.

In the early stages of a startup, there’s often a lack of clear validation for the business model, and it’s difficult to materialize revenue or other metrics, which makes valuation (determining company value) the biggest discrepancy between startup and investor opinions and the most time-consuming stage.

Investment without valuation?

What if there was a way to skip the valuation process and get investment upfront?

So, if a startup with potential could receive quick investment and then determine its equity stake based on subsequent investment valuations, it would be what both startups and investors desire.

Considering these points, we’d like to introduce the Simple Agreement for Future Equity (SAFE), which is designed to do just that.

What is a Simple Agreement for Future Equity?

The Simple Agreement for Future Equity (SAFE) is a venture capital structure initially conceived in Silicon Valley and now widely used. It’s designed for early-stage startups with difficulty determining company value and allows subsequent investors to determine the startup’s equity stake based on their valuation in later investments.

That’s why it’s particularly useful for early startups, allowing for quick and simple investment, preventing excessive dilution of the founder’s equity, and avoiding valuation-related disputes. It also provides benefits for the company, such as reducing initial company valuation analysis costs and lowering the risk of overvaluation.

Recently, in line with global standards, the “Act on Venture Investment Promotion” (Venture Investment Promotion Act) and the “Act on Promotion of Venture Companies” (Venture Company Promotion Act) have been implemented in Korea, and financial institutions are also launching financial products based on the SAFE structure.

Law Firm Veat possesses expertise through its experience reviewing SAFE agreements and providing legal advice related to SAFE investments. Please refer to this here for relevant case studies, and please don’t hesitate to contact us.