Conditional Subscription Agreement (SAFE) and Refundable Convertible Preferred Stock (RCPS) Legal Review

Law firm Veat provided specific consultations, including due diligence, regarding investment methods in the initial investment stage, from investor A (hereinafter referred to as “Client”).

Law firm Veat provides explanations of the Subordinated Equity Purchase Agreement (SAFE) and Redeemable Convertible Preferred Stock (RCPS) methods and provides sample contracts for angel round investment formats.

Furthermore, Law firm Veat’s Investment Advisory team provided detailed analysis of the Significance, advantages and disadvantages of Subordinated Equity Purchase Agreement (SAFE) and differences from Redeemable Convertible Preferred Stock (RCPS).

Key features of SAFE and RCPS in startup investments

The key features of SAFE and RCPS in startup investments are as follows.

Features and Advantages of Subordinated Equity Purchase Agreement (SAFE)

SAFE is a useful investment-raising method for early-stage startups where the valuation of a company is difficult. Essentially, a SAFE gives the investor the right to acquire shares in the future, without complex valuation or stock issuance at the time of investment. This simplifies contract execution in the initial investment stage, and allows both the startup and the investor to manage liquidity and investment risk simultaneously.

Features and Advantages of Redeemable Convertible Preferred Stock (RCPS)

Redeemable Convertible Preferred Stock (RCPS) is a stock that combines redemption rights, conversion rights, and priority rights.

First, the Redeemable Convertible Preferred Stock (RCPS) has a redemption right that can only be exercised within the company’s profit range.

Furthermore, it has a conversion right to convert into common stock and holds priority rights in the event of the company’s liquidation or dividend distribution.

Redeemable Convertible Preferred Stock (RCPS) is characterized by the addition of redemption rights, conversion rights, dividend and residual asset distribution priority rights while maintaining voting rights and subscription rights

Particularly, From the perspective of early-stage startups with limited capital, a tendency to prefer Redeemable Convertible Preferred Stock (RCPS) exists due to the fixed principal and interest payment obligation of warrants

Law firm Veat’s Investment Advisory team has provided legal advice to various startups and venture companies with its deep expertise in M&A and investment fields and extensive experience, and through this, the Investment Advisory team of Law firm Veat has accumulated experience and know-how in investment M&A advisory, and has grown together with the growth of numerous client companies such as venture companies and startups, creating synergy.

Law firm Veat, Ranked 2nd in terms of transaction volume in the 2023 Q1 Bloomberg M&A League Table and was selected as a Finalist in the Koreal Deal Firm category for two consecutive years in the ALB Korea Award 2022, recognized its skills and expertise.

Law firm Veat will be a strong partner to help your clients achieve stable growth.

If you need legal advice on SAFE and RCPS, please contact Law firm Veat.

Thank you.

Law firm Veat.