How the Crowd SAFE works
Republic
A Crowd SAFE is an investment contract between investors and companies looking to raise capital. Individuals make investments for the chance to earn a return—in the form of equity in the company or a cash payout—if the company is acquired, goes public, or sells all of its assets.
What is the Crowd SAFE?
A Simple Agreement for Future Equity
The Crowd SAFE was created by Republic and is an adapted version of the SAFE, a financial instrument created by Y Combinator and widely used by angels & VCs investing in startups. It’s designed specifically to work for investment campaigns accepting hundreds or even thousands of investors, and it's now used by several industry players in various forms.
How does it work?
Investors using the Crowd SAFE get a financial stake in the company, but are not immediately holders of equity. Investments are converted to equity if certain “trigger events” occur, such as the company’s acquisition or IPO.
Risk note: Trigger events are not guaranteed. Investors should see them only as possibilities.
How much can I earn?
Your return depends on your investment amount, the company’s exit valuation (how much the company is worth if and when a trigger event happens), and the terms of the Crowd SAFE. Investors invest pre-money meaning that their stake is affected by future financings and events only.
Risk note: If a trigger event does not happen, you may never get a return on your investment.
Terms of the Crowd SAFE
Each company can customize its Crowd SAFE. Most companies include a valuation cap and a discount. If the Crowd SAFE includes both a valuation cap and a discount, the provision more favorable to the investor applies if there is ever a trigger event.
Valuation cap
The valuation cap specifies the maximum valuation at which the investment converts into equity or shadow shares. This means that investors, when a trigger event occurs, receive equity shares at the valuation cap price—even if the valuation at which the company sells is higher. The higher the valuation of the company at the time of sale, the greater the investor’s return. Investors can also request their cash back if they believe this represents a better return on investment.
Discount
If a trigger event occurs, the discount provision gives investors equity shares at a reduced price relative to what others pay at IPO or acquisition. If the Crowd SAFE is converted during an equity financing, the discount will allow investors to receive shadow shares at a discounted price compared to what new investors paid.
Nominee Lead
A nominee lead is appointed to direct the Nominee on certain matters like voting, amendments and conversions affecting the security.