Q: How do I explain SAFE agreements to a potential investor who has never invested in startups?
I wouldn’t use a SAFE with an investor that has never invested in start-ups.Ā It’s too confusing and too big a learning curve.
Most folks understand buying stock, plain and simple.Ā They’ve bought something.Ā Cisco.Ā A mutual fund.Ā Apple.Ā They get it, at least, mostly.
A SAFE has pros and cons for investors who have done this before.Ā 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.Ā If it’s a very small investment, I prefer a SAFE.Ā We get it from the YC site, fill out the few variables — done.
But for someone new to investing — sell them stock.Ā 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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