Resolution – If the business fails, SAFE owners have the right to recoup their investment, provided the funds are available. All the money that the company must distribute would be distributed to SAFE holders before being distributed to common shares. This agreement also assumes that these are a number of identical agreements concluded as part of an investment cycle in the seed sector. In this case, some decisions about the entire investment are made by the majority of investors and not by an individual investor. While safe is not really a convertible note (as has already been observed), Kiss is very close to the classic convertible bond model: it has interest rates at a declared interest rate (5%) and sets a maturity date (18 months) at which the investor can convert the amount of the underlying investment, plus accrued interest, into a new set of preferred shares of the company. Unlike SAFE, KISS contains an MFN clause that allows the investor to obtain better securities in the future if issued by the company. Kiss investors usually invest in the company very early when there is still a huge risk. An MFN term offers downside protection in the event that the company enters into a “Down Round” (or otherwise more favourable terms for other investors). Getting upfront funding can be an important issue for young people and start-ups. An increasingly popular investment instrument is the alternative to notes, an investment instrument used as an alternative to convertible bonds.
YCombinator, a leading incubator on the West Coast, presented its musical alternative document at the end of 2013, which it described as the Simple Agreement for Future Equity (SAFE). As YCombinator explained, he has developed SAFEs to “address many of the problems associated with convertible notes while maintaining their flexibility.” Shortly thereafter, another accelerator, 500 startups, presented a competing document called Keep It Simple Security (KISS). These note alternatives have been accepted on the West Coast – where innovation is often accepted first in funding seed internships – and seem to be gaining traction on the east coast.