SAFE treatment with Reg A+
There are a lot of good questions out there about how the SAFEs are treated in our Reg A+. The questions are so good it’s taken me awhile to figure out how to answer them all correctly.
Here is the rundown as I understand it:
Republic SAFE holders. The Republic campaign launched on Feb 08, 2019 and had the following relevant terms:
- $7M price valuation cap
- 20% discount
- May convert at the next equity financing round, at the company's option, if Cloudastructure raises not less than $1,000,000 in net proceeds.
Wefunder SAFE holders. The Wefunder campaign launched on October 31st, 2019 and had the following relevant terms:
- $9M price valuation cap for the first $100k in, $10M price cap for the rest
- 20% discount
- Converts automatically at the next equity financing in which the Company issues Preferred Stock into shares of that Preferred Stock.
Our Reg A+ went live at the beginning of August, 2020.
- Just over a $30M pre-money valuation
- $0.50/share for Series A Common
For both the Republic and Wefunder SAFE’s, the holder gets the better of the price derived from the valuation cap or the discount.
Here’s how we do the math. If you invested $100 with a $7M price cap, and the pre-money valuation is now $30M, then, if you converted into the Reg A+, you would essentially get 30/7 * $100 worth of Series A Common. That’s $429 worth of Series A Common for your $100 investment -- not bad! That’s also clearly better than the 15%-20% discount (which would be only about $118).
If you invested $100 with a $10M price cap, the math is essentially then 30/10 * $100 = $300 worth of Series A Common. Still great, especially over such a short time frame.
Note that math is slightly more complicated and different than above, but this is the easy way to think about it and it’s really close. We’ll get exact numbers to everyone with their holdings when the time comes.
Now, the question is: when/how/if you convert to Series A Common or do you convert later?
- Assuming we raise more than $1M, the Republic SAFE holders convert at the company’s option.
- Wefunder SAFE’s wait until we issue preferred stock (not common stock), or get acquired or go public. The Reg A+ is Series A Common stock, with no preferences, so Wefudner SAFE holders wait for a round with preferences or for a liquidity event (e.g. sale or IPO).
We will likely be trying to treat both SAFE holders the same, which likely means conversion won’t happen at this time for either. No matter what, though, sadly, we can’t liquidate and have yacht races in the Caribbean together at this time. Whether you convert now or later is immaterial for present day liquidity.
If we have better terms later, though, SAFE holders will be better off waiting to convert instead of converting now. The term “let it ride” comes to mind.
Does this all make sense? To be honest, it’s taken me several conversations with all of Republic, Wefunder and our lawyers to get to this level of understanding. Please chime in on the comments below if you have any questions. Please be patient for the answers, I likely need to talk to other people to make sure I have the answer right before I post it.
In any case, the Reg CF investors did great. All the Crowdfunding SAFE holder’s investments are effectively up 300-429%! Which I think is fantastic, especially given that our first such investments were just about a year and a half ago.
Of course, you are all welcomed and encouraged to invest in the Reg A+ as well. Many people say that buying on the way up is often a good investment strategy. We have big expectations for our Reg A+, we have reason to believe that it will really take off in September. In the meanwhile, it doesn’t hurt for us to bang on the system and make sure it’s taking investments smoothly.
Most importantly, thanks again to all the CF investors who got us this far! It’s no exaggeration to say that we couldn’t have done it without you.
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