How does I explain SAFE agreements to a potential investor who has never invested in startups?

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JASON LEMKIN

I wouldn’t use a SAFE with an investor that has never invested in start-ups.  It’s too confusing and too big a learning curve.

Most folks understand buying stock, plain and simple.  They’ve bought something.  Cisco.  A mutual fund.  Apple.  They get it, at least, mostly.

A SAFE has pros and cons for investors who have done this before.  While not particularly investor-friendly, a SAFE has a huge advantage of being a known entity and is the faster and simplest way to raise capital from folks in the know.  If it’s a very small investment, I prefer a SAFE.  We get it from the YC site, fill out the few variables — done.

But for someone new to investing — sell them stock.  The old fashioned way.

X shares for $Y, representing Z% of the company.

This is something everyone can understand.

Maybe it was always fine and the best way to do things, anyway.

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Published on October 13, 2015
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