India Simple Agreement for Future Equity: All You Need to Know
India Simple Agreement for Future Equity, commonly known as iSAFE, is a popular investment instrument for startups in India. It is a convertible instrument that allows investors to invest in a startup today and convert their investment into equity at a future date. In this article, we will discuss the iSAFE in detail, its benefits, and how it works.
What is iSAFE?
The iSAFE is a document that allows investors to invest in a startup in exchange for the promise of equity in the future. It is a simple, standardized document that provides a quick and easy way for startups to raise money. The iSAFE is a convertible instrument, which means that it converts into equity at a future event, such as a funding round or an exit.
Benefits of iSAFE
The iSAFE has several benefits for both startups and investors. Here are some of the key benefits:
1. Quick and easy: The iSAFE is a simple document that does not require extensive negotiation or legal fees. This makes it a quick and easy way for startups to raise money.
2. Flexible terms: The iSAFE is a standardized document, but it allows for flexibility in terms of the conversion trigger and conversion price. This allows startups and investors to negotiate terms that are suitable for both parties.
3. Investor protection: The iSAFE provides some protection for investors by allowing them to convert their investment into equity at a future event. This protects investors from the risk of the startup failing before they can receive their return.
4. Simplified due diligence: The iSAFE reduces the need for extensive due diligence on the startup, as investors are investing in the promise of future equity rather than the current state of the business.
How iSAFE works
The iSAFE is a simple document that outlines the terms of the investment. The key terms of the iSAFE include:
1. Investment amount: The amount that the investor is investing in the startup.
2. Conversion trigger: The event that will trigger the conversion of the iSAFE into equity. This is typically a funding round or an exit.
3. Conversion price: The price at which the iSAFE will convert into equity. This is typically a discount to the price at which the equity is sold in the conversion event.
4. Interest rate: The interest rate that will be paid on the iSAFE if it is not converted into equity.
Once the iSAFE is signed, the investor will transfer the investment amount to the startup. The startup will then use the funds to grow the business. When the conversion event occurs, the iSAFE will convert into equity at the agreed conversion price.
In conclusion, iSAFE is a popular investment instrument for startups in India. It provides a quick and easy way for startups to raise money, while also providing some protection for investors. The iSAFE is a flexible and standardized document that allows for easy negotiation of terms. If you are a startup looking to raise money or an investor looking to invest in startups, the iSAFE is definitely worth considering.
