We created an instrument to solve problems we believe other existing security instruments have. Startups can be left with hundreds of unaccredited investors on their cap table, each with a relatively small capital commitment.
This is problematic for several reasons:
A Crowd Safe gives the company flexibility over if and when its crowdfunding investors become its shareholders or owners of record.
The main differentiating features of a Crowd Safe include:
Companies can choose to extend the Crowd Safe and avoid converting upon their first equity financing, avoiding converting existing investors and providing a return.
If there is a conversion, a fixed conversion price ensures that investors have the same economic outcome, regardless of whether the Crowd Safe is converted to common stock or shadow shares. There is no guarantee that a conversion will occur.
Upon a conversion, investors receive unique shadow shares with limited voting and information rights.
As a flexible and renewable security, the Crowd Safe helps startups fundraising under Reg CF avoid “messy cap table” concerns, save legal fees and reduce the time spent structuring the terms of their financing.
Because a Crowd Safe has no expiration or maturity date, founders need not waste time or money dealing with extending maturity dates, revising interest rates or the like. The Crowd Safe can be used by companies from pre-seed to late stage, before, after, or concurrent with an equity issuance.
Possible additional equity financing above a set value can either trigger a conversion or the company can choose to extend the term of the Crowd Safe. In the event a company is acquired or a public offering of securities occurs, the Crowd Safe is automatically converted to cash or common shares, at the Crowd Safe holder's discretion.
Investors should learn how the Crowd Safe works and the connected risks.
Crowd Safe terms can be modified to meet founders' specific needs. For example, a Crowd Safe can grant investors (instead of the company) the choice to convert after an equity financing – and promptly be liquidated by the company – or extend the Crowd Safe to the next financing.
In the event the startup folds due to insolvency, Crowd Safe holders will not be entitled to any assets.
Similarly, a Crowd Safe may have pricing terms with valuation cap, pricing discount or both. Companies should review and customize these templates with the help of experienced counsel. Republic does not assume any responsibility for any consequence of using these documents.
Companies can customize the Crowd Safe to include repurchase rights. Depending on whether a company’s Crowd Safe has a cap or a discount will affect what value an investment has relative to conversion.
We appreciate the helpful feedback of friends and attorneys, and we expect we will iterate further on the Crowd Safe. Please send your comments to email@example.com.
Crowd Safe and CrowdSafe are trademarks of Republic and are registered with the United States Patent and Trademark Office.
Despite the use of the word “Safe” in the term “Crowd Safe”, Crowd Safe investments do not represent a safe investment, there is a high degree of risk.
There is no guarantee that triggering events will occur, meaning an investor can lose all of their investment. Terms of a Crowd Safe may vary from deal to deal, please consult each issuer’s Crowd Safe for the terms of the offering. The value of a return on a Crowd Safe will be directly affected by the valuation of the company at the moment of liquidity, please consult the terms of a Crowd Safe for more information.
Republic provides these investment instruments solely for educational purposes — investors, issuers and investment professionals should do their own research and seek their own legal counsel before utilizing these instruments. Republic cannot be responsible for your use of these instruments.
Republic does not verify information provided by companies on this Portal and makes no assurance as to the completeness or accuracy of any such information. Additional information about companies fundraising on the Portal can be found by searching the EDGAR database.