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what is a safe note a simple agreement of future equity let's take a look at the three most important things about this agree hello startups and investors my name is Ross Blankenship I'm the founder of angel Kings the author of Kings over aces the best-selling book on startups and venture capital and I'm gonna go over briefly with you a very important more recent term in startups as well as venture capital that could impact you and it's called a safe a safe document so what is a safe what is a safe this is not this is not your typical safe where you've got a vault and you lock money put it in there necessarily oh I can draw draw an analogy to that a little bit but a safe the acronym stands for a simple agreement for future equity a safe is an agreement that grants the holder the right to equity at a potential future financing when the startup sells preferred stock let's break that down it's an agreement so typically an agreement has within startup investing you know when we invest in startups and Angel Kings we invest in either convertible note so that's the type of agreement that we might have or it's some type of debt that converts into equity we might just do a straight up what's called equity round but the bottom line is whether it's a convertible note or equity round is a safe provides a start-up the offshore the opportunity to not necessarily have to put a strict evaluation on that particular round okay so it gives them a little bit more flexibility another positive to the safe round is the fact that you don't have to if you're raising money as a start-up one of the biggest challenges have any coal together bring together all the different interested investors have them sign a document that you know they might want to negotiate different terms and that just makes it incredibly prohibitive or and creates an obstacle for startups to focus on the product so I think it's very profounder in which we very much appreciate and then in terms of you know the the documentation right instead of having to pay a lot of extra attorneys fees which you may not have isn't it as a start-up this makes it all simple so it's very Pro founder friendly and I think that's why this came out of Y Combinator we've got so many awesome startups on a linear incubator so that's the definition it's agreement that grants the hold of the right to equity to potential future financing on the startup sells preferred stock now here's in practice right okay this is from Y Combinator unlike a convertible note a safe is not a debt instrument debted instruments have maturity dates they're subject to regulation there's threat of insolvency etc you know this is not a loan right this is not a loan with interest earned a note rather with interest okay that's typically what a convertible note is we have tons more inside access on both of these at our course website angel kings.com backslash course but this is not a note or a debt offering okay um you know so that's important to know the second thing is because the money is nested in a start-up via safe is not alone it will not occur interest and first up i want to make a distinction here if you are investing in venture capital okay you should not be investing for the purpose of getting a dividend and if you are you're investing the wrong thing the purpose of startup investing is high-risk high-reward there are some returns that are astronomical that we've seen at Angel Kings right thousands of percent return that you cannot beat anywhere else I mean to match that on the public market is impossible sure you can invest in the public market and dividend paying stocks MLPs that pay five to ten percent great companies like Blackstone KKR that pay big your private equity firms but you if you're in the private market which is what we're investing in you know we're not looking for a high dividend per setting I mean sometimes we do if it's depending on the offering but it's important so this is not a loan and it doesn't accrue interest this number three this is an flexible one document security with numerous terms and I mentioned this early in the definition but it saves so much money you know if you are you know have let's say a couple hundred thousand dollars in your runways small and you're out there you know spending more time um you know working with attorneys and drafting documents as opposed to getting customers and clients you'll lose out there's an inherent opportunity costs that you might suffer from so we like that about the safe document as well fourth thing a safe still allows for hybrid what's called high resolution fundraising okay so so that means that the startups can close with investors as soon as both parties ready and and so if you have let's say on average there's ten investors in either cedar series a okay not always do you see the same investors in each but sometimes you do if you have ten investors and one is in California one is in Japan one is in China whatever okay different time zones maybe they're in East Coast West Coast just coordinating time alone is difficult imagine if you throw in the valuations that the investors are trying to do and the preferred stock terms it becomes a nightmare so that's why we like the safe document it's something we've invested in something we espouse on you can actually download examples on our website angel kings.com backslash and best here's the point safety note is excellent for startups it's not necessarily good though for individual inexperienced investors want greater involvement meaning if you're a micromanager you need to have every thing managed and every little document detail dragged along rights etc hurt all that stuff then did the safe isn't for you so so know that but overall it's a great document if you won't learn more we'd love to help investors we love helping startups and angel kings go to our website angel kings.com backs and fast this is Ross Blankenship founder of Angel Kings signing off so if you want to invest in America's next top startups and future IPOs go to angel kings.com backslash invest and reserve your spot today