To combat this problem, the new SAFE contains changes that are beneficial to both investors and businesses. In this new version of SAFE, the valuation ceiling is presented as a post-money evaluation. As such, investors have a much better idea of the outcome of their investment (assuming a conversion to the valuation ceiling and not to the discount rate). Presenting the valuation cap as a post-money valuation reduces the likelihood that investors will be exposed to unforeseen dilution. For example, if you use a money valuation cap, if the valuation cap was $1 million and an investment of $200,000 was made, investors now know that it would be 20% ($200,000 divided by $1 million). If a future investor entered for $300,000, as the original example, it would not water down the first investor. The risk-return profile of SAFE investments is that of venture equity in a start-up start-up and not debt (which includes the promise of a specific payment within a specified time frame). The objective of SAFE investors is of course that their SAFE investments be converted into preferred shares if and when the start-ups in which they invest make preferential financings in equities. But safe owners are exposed to two very real risks, which can and can sometimes prevent their objective from ever being achieved: in the two scenarios mentioned above, SAFE investors lose their money and receive nothing in their favour. Therefore, the risk-return profile of SAFE investors is that of early equity investors in a start-up, and FASCs should be considered equity and not debt.
While it seems simple if you only had one investor or if all investors came at the same time, investors often don`t have a clear idea of their share if SAFes were subsequently sold at the same or different valuation caps or caps. If the above mathematical data is used (and does not take into account the other variables mentioned above), the money valuation would be $1.5 million if an additional $300,000 were spent on FAS. The initial $200,000 would now be worth 13.33% ($200,000 per $1.5 million). Essentially, future SAFE buyers watered down former SAFE investors and eventually beat one of SAFE`s main tenants: transparency. The previous SAFE made it a little more difficult for investors to determine what they bought because of the increase in the amounts, cycles and conditions of DEEE investments. From a technical point of view, start-ups do not have sufficient authorized shares before the conversion of FASS after the conversion of SAFEs.