Safs or simple agreements on future capital were put in place at the end of 2013 by Y Combinator in place of convertible bonds. They are a popular opportunity for start-ups to raise capital and are often privileged over convertible bonds because they do not bear interest, have no maturity date and are only converted to equity when certain pre-defined criteria are met. 1 See blog.ycombinator.com/announcing-the-safe-a-replacement-for-convertible-notes/ (called 20.04.2018) and www.ycombinator.com/documents/ (called 20.04.2018).2 Id.3 See Edward Zimmerman, „The Damaging Shortcuts Entrepreneurs Take When Raising Money,” The Wall Street Journal (April 30, 2018) („There is no doubt that SAFE and KISS documents will be faster and cheaper – when the deal is concluded for the first time. Unfortunately, over time, this is not the case. In FASAs, KISS documents and convertible notes, unresolved problems and problems that everyone goes down to secondary letters can often make the next fundraising effort more complicated and costly, which sometimes leads to negotiations detrimental to relationships at a time when the company is doing well. « ). 4 For example, convertible bonds may be considered equity if the entity securitized by that debt is a start-up company and, at the time of the issue, it is unlikely that it will be able to repay the debt without a subsequent investment that would allow it: 5 See blog.ycombinator.com/announcing-the-safe-a-replacement-for-convertible-notes/ (called 20.0.2018) and www.ycombinator.com/documents/ (called 20.04.2018).6 See z.B. Roth Steel Tube Co. Comm`r, 58 A.F.T.R.2d 86-5808, 86-5811 (6.
Cir. 1986), cert. The estate of Mixon v. United States, 30 A.F.T.R.2d 72-5094, 72-5098-99 (5th Cir. 1972); End Hay Realty Co. v. United States, 22 A.F.T.R.2d 5004, 5005-06 (3d Cir. 1968); Revenue Ruling 83-98, 1983-2 C.B. 40.
See also 385 (b). Unless otherwise stated, all references in this section refer to the 1986 internal income code as amended or the Treasury Regulations adopted.7 See Farley Realty Corp. v. Comm`r, 5 A.F.T.R.2d 1646, 1649 (2d Cir. 1960) („Many cases have established that the absence of a fixed maturity date is a determining factor against the assertion of a tax subject to the business that there is a debtor-creditor relationship between him and his beneficiary”). 8 Revenue Ruling 83-98, 1983-2 C.B. 40 (to find convertible bonds as equity and not as a tax debt in which the instrument would be converted into equity, unless the share price has fallen by more than 40 per cent).9 Lucas v. North Tex.
Lumber, 281 U.S. 11 (1930); Virginia Iron Coal – Coke Co., 37 B.T.A. 195 (1938), aff`d, 99 F.2d 919 (1938), cert.B. See „Chief Counsel Advice Memorandum 201025047” (3/22/2010).12. See Ed Zimmerman and Brian A. Silikovitz, „Gimme Shelter: VC-Backed M-A Tax Strategies for QSBS/1202,” Forbes (July 18, 2016) (`Zimmerman – Silikovitz Forbes QSBS`). 2003-7, 2003-1 C.B 363. See also IRS LMSB Coordinated Issue Paper on Variable Prepaid Forward Contracts Incorporating Share Lending, LMSB-04-1207-077 (Feb. 6, 2008.16 For more information on these topics, see Zimmerman -Silikovitz Forbes QSBS, quoted in footnote 11, and Edward Zimmerman and Brian Silikovitz, „How Startup Founder Stock Often Triggers Unnecessary Personal Tax Hits,” Forbes (Jan. 6, 2015). SAFEs are supposed to be simple and flexible agreements that offer little room for negotiation beyond the valuation ceiling or the maximum valuation at which SAFE is converted into equity. The future share price is not indicated in the SAFE agreement and does not offer an exercise or maturity date; On the contrary, these positions will be determined in the future if there is a triggering event – either equity financing, a liquidity event or a dissolution event.
In the case of a liquidity event (for example. B change of control or IPO) before the conversion, an investor receives the higher purchase price (i) of SAFE or (ii) the converted product he would have received in the event of liquidity.