Safe Pro Rata Rights Agreement

The investor has the right to acquire his proportionate share of standard preferred shares sold in equity (the “Pro Rata Right”). The number of shares per rata for the purposes of the pro Rata Right is the ratio of (x) of the number of shares issued by the conversion of all the investor`s coffers with a “post-money valuation cap” in (y) of the company`s capitalization. The Pro Rata right described above automatically expires on the previous date (i) of the first closing of the equity financing; (ii) immediately prior to the closing of a liquidity event; or (iii) immediately prior to the dissolution event. The old regime granted rights to investors on a pro-rata basis. It didn`t make much sense. It is not surprising that many investors would modify the SAFE attack with an explicit Series A clause with a pre-defined ownership percentage. The new system is a more logical and transparent approach. Another new function of the safe concerns a “prorgula” right. The original safe required the company to allow holders of safes to participate in the financing round after the financing round in which the safe was converted (for example. B if the safe is converted into series group preferred actuators, a secure holder – now holder of a Series A preferred share subseries – is allowed to acquire a proportionate portion of the Series B preferred share). While this concept is consistent with the original concept of safe, it made no sense in a world where safes were becoming independent funding cycles.

Thus, the “old” pro-rata right is removed from the new safe, but we have a new model letter (optional) that offers the investor a proportional right in the preferential financing of Series A on the basis of the converted safe property of the investor, which is now much more transparent. Whether a start-up and an investor enter the letter with a safe will now be a choice that the parties will choose, and this may depend on a large number of factors. Factors to consider can (among other things) the amount of the safe purchase and the amount of future dilution that proportional duty can cause to the founders – an amount that can now be predicted with much greater accuracy if post-money safes are used. Under the old agreement, if an acquisition took place prior to the SAFE conversion, investors had the right to choose between receiving a cash payment of their investment amount or converting it into common shares. Under the new agreement, investors will automatically receive the largest amount of their investment amount or the proceeds of the buyback transaction, as if they had been converted into a common amount.